This thread struck a familiar chord with me, a SOUR chord! I’ve made
several pieces of jewelry a year for various local charitable
organizations, and according to my accountant (who I believe knows
what he’s talking about) NONE of it is ever deductible beyond my
cost of materials, which were already deducted after the original
purchase. No deduction for the difference between the wholesale and
retail costs. No deduction (this is the one that gets to me) for
any of the hours of labor I put into creating the pieces. He’s
explained how the business could be reorganized to be able to take a
deduction- by incorporating I think, but it doesn’t matter - because
then I’d just have to pay taxes on it which he said would be a wash
in the end. Or something to that effect. I hear the word “taxes” and
my eyes glaze over. Have any of you come across this problem and
come up with a better win-win solution?20
Cindy Crouse
Refined Designs Original Fine Jewelry
Cindy, your accountant is correct. The benifits you derive from your
donations are other than with the IRS. I donate between 4and 6
pieces to non-profits every year either arts related or social
services. What benifits are there? let me list a few from my own
experience.
-
you are giving back to a community which is supporting you in
your endevors as an artist. Hopefully you work is selling for an
amount of money that you could otherwise not afford to donate. I had
one piece auction for almost $4500. I could afford the materials but
I could never have written a check for that $4500.
-
Horfully you are getting an invitation and free tickets to the
fund raiser( I will not donate if I don’t get at least one free
ticket) This gives you the opportunity to socialize and promote the
work you donated as well as meet new potential customers that you
would not have met before ( I can trace over $60,000 worth of
business back to a single donation piece and the customer that bought
it. Not only is he a loyal customer and a friend I might have never
met otherwise but he has also referred me a large number of very good
customers) and you get to party.This is called broadening your sphere
of influence.
-
you are basically volunteering your labor and expertice when you
donate an item and supporting a very worthy non-profit that could not
survive without the people who so generously donate their time and
skills to make the organization function and provide the services to
the community that are their mission statement. The accountant,
lawyer , secretary, homemaker, mechanic etc that donate their
services and do not get a tax write off either but it doesn’t keep
them from volunteering.
-
and last but not least you get that warm fuzzy feeling inside
when you know that something you have done as an artist has made a
difference in the world and hopefully helped to make it a better
place.
so doante and enjoy the benifits. Who knows when you might need the
services of one of thse very same non-profits. My two cents from one
of my very favorite soap boxes. Frank Goss
Cindy, You are correct that you cannot deduct the cost of artwork
beyond the materials. It’s the law and in some regards it does
strike a sour note. However, you can make a donation into a
positive experience. When you donate the piece, find out who
ultimately ended up with the work. If they liked the piece enough
to make a bid, then they might like more of your work. Write up
some interesting tidbit about the work you did with your contact
Donating jewelry doesn’t have to be a sour experience.
You can turn this around into a useful marketing tool in your
favor. Also, list the purchase on your resume as “Lovely Leaf Pin,
Private Collection of so and so”. A few of these and someone is
bound to ask for a private commission.
-karen
Karen Christians
M E T A L W E R X
10 Walnut St., Woburn MA 01801
Ph. 781 937 3532, Fx. 781 937 3955
http://www.metalwerx.com/
Jewelry/Metalarts School & Cooperative Studio
Board Member for the Society of North American Goldsmiths
I don’t know much about tax issues - I did read recently however in
a newsletter of the Lane Arts Council (Oregon) that in the state of
Oregon, for state tax purposes only you can deduct the difference of
the cost vs. retail price of a donated artwork. Perhaps there are
other states where this is true? Michelle
I read an article once that suggested artists simply not donate
their work to charity. That if approached, the explain the tax
situation and say that if they find a donor to buy the jewelry then
the buyer can donate it to the charity and the donor gets a tax
deduction. The author of the article had a form letter to this
effect that she sent out to every charity that sent her a
solicitation.
Elaine Luther
Chicago area, Illinois, USA
Certified PMC Instructor
@E_Luther
Cindy - your accountant is correct. There is legislation currently
up in the legislature that would change this. Covered in the current
issue of Crafts Report. Try their web site and see if they have
anything on the issue there. The new legislation would require you
to have an independent appraisal of the work, if I understand it
correctly. As this would cost money, I don’t see it being
terrifically helpful!
The best thing to do is have someone buy your piece and then have
then donate the piece, and you donate the money - your cash donation
is tax deductible, and their donation of the piece is deductible for
them.
Otherwise, you just do it as charity on your end with no tax
benefit. Sometimes the marketing benefit is worth, even if you don’t
get a tax deduction.
Beth in SC
Cindy,
According to my reading, the tax code makes a big differentiation
between donation of equipment and donation of inventory (i.e., the
jewelry you make). My understanding is that if you donate something
that you could have sold in the normal cost of your business, the
only deduction is your cost (inventory valuation) of the piece. IF
you pay yourself (or someone else) a salary (and pay taxes on that
salary and receive a regular paycheck) out of the biz, then the cost
of time is calculated into the inventory valuation of the piece.
However, if you do NOT pay yourself a salary, then the only inventory
valuation is the cost of materials, which you’ve already accounted
for.
I think that most artists who donate their work to charity see it as
“free” (ha!) advertising within the community they are trying to
reach. The publicity can be good and the likelihood of getting
commissions for other work as a result of the donation is part of the
equation in deciding whether to do it. But I don’t think any of us
do it for the (nonexistent) tax break.
Donating old tools, clothing, books, etc., on the other hand, can
carry with it an additional tax break based on the fair market value
of the items in question and the charitable status of the
organization to which you’re donating. A good CPA who is experienced
in charitable giving can guide you through the decisions on that (as
well as on the donation of inventory issue).
Karen Goeller
@Karen_Goeller
http://www.nolimitations.com
Handcrafted and Unique Artisan Jewelry
Have any of you come across this problem and come up with a better
win-win solution?
Sell the jewelery conventionally, and donate the money.
best way I can figure is to cost out jewelry for donation at a
wholesale cost basis[as if you were going to have it for sale in
your store] and inventory it . This will at least include a labor
and manufacturer markup . This increases your inventory value . You
donate this piece [ xyz-123 ] delete it from your inventory and it
reduces your inventory value , this difference is your "tax"
advantage .
Mark Clodius
Below is some regarding U.S legislation, so lets start
lobbying our elected officials.
=A7 UPDATE ON ARTIST DONATION TAX LAW:
On April 9, 2003, the U.S. Senate passed by a vote of 95-5
legislation with provisions allowing artists, writers, composers and
other creators of original work to take a full fair-market value
charitable contribution for the donation of their “literary,
musical, artistic, or scholarly compositions.” Current tax law allows
artists to deduct only the costs of materials, such as paint, brushes
and canvasses, while ignoring the true value of the work.
In late April, Representative Blunt (R-MO) and Representative Harold
Ford, Jr. (D-TN) plan to introduce a bill-the Charitable Giving Act
of 2003-similar to the CARE Act passed by the Senate. Please contact
your House member and ask them to urge the Representatives Blunt and
Ford to include the artists’ tax deduction provisions in the House
bill as passed by the Senate. If the provisions are included, seek
your representative=92s vote in favor of the Charitable Giving Act of
2003. This bill is the House companion to the Senate CARE Act.
Ken Gastineau
Gastineau Studio
Berea, Kentucky
Hello Cindy, Karen Christians and Frank Goss said it well. In
essence, your benefit from a donation lies not in the tax deduction,
but in the publicity, contacts, and knowledge that you’ve helped a
worthy cause. I really like to participate in “friends of the
museum”/arts coalition fund-raisers. Just a couple days ago, I got a
call from a lady who had bought one of my pieces at a museum event.
She has some stones for me to use in creating jewelry just for her.
You do indeed receive more than you give. Judy in Kansas
Wow, you gave some great responses to this issue. I especially like
the one a few of you suggested about finding someone to buy a piece
of jewelry and then donate it to the charity, while I also donate
the money I received for it. An added benefit is that the
organization would get approx. double the amount it would have
received originally. The big drawback is finding someone to buy
and donate to the organization I’ve selected each time I want to do
this. Hey, maybe another topic to include in a future newsletter to
my customers…
Beth, I checked out the website for the Crafts Report and found the
article you referred to. Here’s the link if anyone else is
interested: http://www.craftsreport.com/current_issue/cs.html The
bill that was introduced into Congress in February would allow
artists (and writers, composers, and scholars) to take a
fair-market-value deduction for works they donate to APPROPRIATE
non-profit institutions. An example they gave for the word
appropriate was that a painter can’t donate a painting to a
non-profit hospital. The donation has to be related to the purpose
of the institution. Well, don’t know about you all, but that would
exclude all the organizations I donate to. But obviously I’m not an
expert on this bill.
I’m in total agreement with you Frank. I’ve enjoyed donating my
jewelry because it feels good to know I’m supporting some terrific
organizations (and ultimately: people). The marketing aspect of it
is minimal in my focus, so it’s funny and wonderful to see how some
of my best customers originally learned of me from these charity
events. My crack about a sour note referred to the way I feel about
how some pretty shady things are allowed as tax deductions by the
IRS while an artist’s honest labor is not. That sure isn’t going to
stop me from doing something that gives me so much back.
Sorry I ran on so long. Thanks for your thoughtful responses.
Cindy
Refined Designs Original Fine Jewelry
Mark, If you are deducting labor as part of Cost of Goods Sold you
are asking for trouble. Of course you should include labor as part
of CGS when figuring prices, but NOT when figuring taxes on its sale
or donation. Labor is deducted when paid. I.E. when you give your
employee a pay check or a pay check to yourself if your business is
incorporated. You cannot deduct that labor cost again when you sell
that piece of jewelry or donate it to a charity. If you do, you are
deducting that cost twice and that is illegal. If you are
self-employed then your profits of the business is your income from
your labor which you report on your taxes. You cannot deduct the
’cost of your labor’ from the ‘income of your labor’. If
Self-Employed people were able to deduct the ‘cost of their labor’
from their sales and donations to charities, then every
self-employed person in the US would pay ZERO taxes. After all, all
profits from a self-employed business person is the income of their
labor. The ‘cost of your labor’ while at the bench making a piece of
jewelry, is no different than the ‘cost of your labor’ selling the
piece of jewelry or while doing the multitude of things needed to be
done to run your business. I know from experience that many retailers
’hide’ income in their business by including labor as part of Cost of
Goods Sold on custom designs, but that does not make it right, it is
Tax Evasion - hope you never get audited. Brad Simon
Hi everyone, Here’s what I’ve learned that’s useful. According to
the IRS online depreciated items can be donated and a deduction based
on current market value can be taken. I found this by calling a
"help line" offered by, of all people, Blue Sheild (ties in nicely
with the insurance questions). The have a service for their memebers
that allows you to call and get a phone referral to someone who will
call you and give you expert help in areas of medicine, finacial
/legal and something else I’ve forgotten. A tax attorney called me
back and researced the issue while =88 was on the phone with him. He
gave me pamphlet and page numbers to substantiate the rules. I’d
pass them along but they are on anenvelope nest to the bed.
thought you’d like to know. Marianne