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Hey all you tax pros. Can labor be used as a tax write off? Here's the situation. My daughter's school has a strings program with NO money. It's been on the chopping block every year but somehow manages to survive. They also have lots of broken instruments and bows that need rehairing very badly. If I do these repairs au gratis, can I write the labor costs off on my taxes? BTW it's a public school. Thanks Paul

I am sure it is different every where but here what you do is do the work, claim it as incolm and then get them to give you a receit for that amount as a donation. Ussually it doen't help with taxes but sometimes it does.

No, I'm rather certain that you can only deduct your out of pocket expenses
(cost) for items you donate. I suspect that labor would constitute "volunteer
work" and not be deductible. At least that's the way I've always treated such
donations. Seems to me that claiming a deduction and reporting the same
amount of income would be so close to a wash as to be insignificant, legal
or not.

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Cheers,

Frank Ford

FRETS.COM
HomeShopTech
FRETS.NET

I'm sure David Bland will have something to add here, but it seems to me that the "value in-kind" rule may apply. That means, for example, if you donate a car to charity, you can claim a write off of the value of the item. Similarly, if you donate an instrument you've made, you can claim the sales value of it. Obviously, that includes the labor you put into it. I see no reason then why you shouldn't be able to write an invoice for work performed for the school, which is a legitimate charity btw, and have them write you a receipt for services rendered. Time is money...but there's a chance Frank is right on this too.

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"I want to know what kind of pickups Vince Gill uses in his Tele, because if I had those, as good of a player as I am, I'm sure I could make it sound like that.
Only badly."

As always these rules vary so much depending on where you are so check with a tax person in your area. I know I have been amazed at how many items (boats, cars, etc. are donated to charities in the states and auctioned off. Doesn't happen nearly as much in Canada I am told be bause our regulations are different.

No. You can't. Also...it isn't a state income tax issue ( although you may have a state income tax - Florida doesn't for individuals) it's a Federal tax issue. The only way you could get a deduction for the labor is to charge them your "going rate" and have them pay you. You then turn around and "donate" ( by writing your personal check to the school/church/whatever) the amount back to them. BUT if you do this you LOSE...why...because the income is taxable to you for both income tax purposes and for computing self employment tax ( assuming you are a self employed individual) (a seperate tax - 15.3%). ALSO...the deduction can only be taken on your Schedule-A and therefore reduces income tax but NOT the self employment tax you are paying. Schedule A may also limit the deduction subject to certain income limitations and also require certain reporting requirements . So what happens is you have an increase in income that is subject to self employment tax and a deduction that dosen't reduce self employment tax. You lose, you have to pay s.e. tax on it!

These rules would change if you were a Corporation and then be treated different yet again depending on whether or not you were a "c" corp or an "S" corp.

My advice...don't do it for tax purposes. Do the repairs, fix as much as possible and know that you used your talent to make some little kid a lot happier. Dave-SKG38686.5613310185

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Dave Bland

remember...

"If it doesn't play in tune...it's just pretty wood"

[QUOTE=Dave-SKG]

My advice...don't do it for tax purposes. Do the repairs, fix as much as possible and know that you used your talent to make some little kid a lot happier. [/QUOTE]

This is the reason I'm doing it. I just thought if I could essentially get the Government to help me out with the tab, I'd to that too. Thanks for the advice.

Dave,
What if he buys the instruments from the school at a deeply discounted price (they are broken, after all), repairs them, and then donates them to the school in repaired condition? Could he deduct the value of the repaired instrument? He would be out of pocket whatever money he pays the school for the instruments, but the value of the write-off may be more than that out-of-pocket cost.

What you suggest is very creative...BUT...that leads to another several complex tax area's...appreciated assets which are then donated to charities/etc. Basically his labor to create appreciated value in the instrument would not add to his basis. It would if he hired a fellow olf'r to do the work and then paid him for it. Otherwise he has a low basis ( he paid very little for it) as a donor and can't get anymore a deduction than his actual outlay/out of pocket cost. No/low basis...no/low deduction. It's realy ashame because as a nation we would have a much more giving people if they could just catch a break from the income tax while be charitable. I guess the polititians want the Gov't. to be he charitable givers...

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Dave Bland

remember...

"If it doesn't play in tune...it's just pretty wood"

Dave's right. It's all about out-of-pocket expenses. But the devil is in the details. Meaning, even a basic repair has some out of pocket expenses. You can't refinish a guitar without shellac, alcohol, oil, etc.

Couldn't you right off these items? While donating your time is a worthwhile endevore, you can't do it here without certain stock on hand. That's where the write offs would come into play i think.

-Rick

I was curious as to what the impact would be if volunteer labor were tax deductible. I looked up some staticiscs:

Number of Americans who volunteered in Sept 2004:
64,542,000

Average number of hours volunteered per volunteer annually:
52 hours.

Total amount of labor volunteered in a year:
3,356,184,000 hours.

Suppose all of these volunteers were paid the $5.15 federal minimum wage. The dollar amount of volunteer labor would be:

$17,178,869,760

The is a lot of taxable income. Assuming a 20% tax rate that would be a loss of $3.4 thousand-million in tax revenue. That's assuming that the volunteer time is deducted at minimun wage. I's unlikely that the US government will leave that money on the table.


I do have a question about donating a guitar.

Suppose there is a charitable auction. I donate a guitar that I built. I spent $400 on materials and the guitar is auctioned off at $2000. I can deduct $400 expenses (I think).

If, however, I donate the procedes from the auction. That is the charity runs the auction but does not own the guitar. When the guitar sells for $2000, I then donate that to the charity. Can I deduct $2000 as a charitable gift?

Mike, it seems like the IRS would look at the instrument's appraised value (by a qualified expert(s), which may have nothing to do with what you would charge for a commission), not its sale price, and not its labor and materials. Remember, as mentioned above, if you take the money and immediately give it to the charity, it's still got to go on your tax return as income--which will probably leave you in the hole, tax-wise.

So, tax guys, is that true? If so, wouldn't it also be true for the poster above who asked about buying instruments in disrepair from a school, fixing them, and then donating them back? Forgetting the labor, wouldn't the instrument then have a higher appraised value, which could be factored in as a deduction?