LINDA BLOSSOM on mon 13 jan 97
Hello all,
Kirby asked me about donations and I was reading in the tax guide for small
businesses, (publication 334) and on page 33 it says this: " If you donate
any inventory item to a charitable organization, the amount of your
duductible contribution is the fair market value of the item, less the
amount that would be ordinary income if you had sold the item at its fair
market value on the date of the gift." I have read this a few times and
still don't quite get it. What exactly is "ordinary income"?
On the kiln losses and things that don't sell and are scrapped, this is on
page 35: " Unsalable goods are goods in your inventory that you cannot sell
at normal prices or in the usual way because of damage, imperfections, shop
we4ar, changes of style, odd or broken lots, or other similar causes,
including secondhand goods taken in exchange, You value these goods at
selling prices minus direct costs of disposition, no matter what method you
use to value the rest of your inventory. If these goods consist of raw
materials or partly finished goods held for use or consumption, they are
valued on a reasonable basis, considering the usability and condition of
the goods. Do not value them for less than scrap value." This subsection
is under the valuing inventory section. It seems to me that by keeping
track of these items and adding them to the ending inventory amount ( with
an explanation for the amount) will reduce the cost of goods sold. This
brings the cost of goods more in line with the sales. It would not look
good to have a higher cost of goods than sales, even Brother Thomas doesn't
do that. Now maybe I should go to a pile that I can show the auditor
rather than throwing these items in my pond...
Linda Blossom
2366 Slaterville Rd.
Ithaca, NY 14850
blossom@lightlink.com
http://www.artscape.com
607-539-7912
Harvey Sadow on wed 15 jan 97
LINDA BLOSSOM wrote:
>
> ----------------------------Original message----------------------------
> Hello all,
>
> Kirby asked me about donations and I was reading in the tax guide for small
> businesses, (publication 334) and on page 33 it says this: " If you donate
> any inventory item to a charitable organization, the amount of your
> duductible contribution is the fair market value of the item, less the
> amount that would be ordinary income if you had sold the item at its fair
> market value on the date of the gift." I have read this a few times and
> still don't quite get it. What exactly is "ordinary income"?
>
Hi Linda,
What this boils down to is that you can claim the cost of materials!
If Midas, himself, bought one of your pieces and donated it, he could
claim the full retail value of the work, if he owned it for one year.
WRITE YOUR CONGRESSMAN ABOUT THIS. IT STINKS. Mention this to the
people who ask you to donate your work to their charity or their
auction. Perhaps you could suggest that you will be happy to comply
when you receive a copy of their letter to their congressman. You could
even offer to supply the letter! Thus spake Don Quixote, tilting at yet
another windmill.
cheers, Harvey Sadow
Nils Lou on thu 16 jan 97
Harvey is exactly right; artists donating their own work to charitable
organizations may deduct only the cost of the the materials used in
producing the work. However, if I traded my pot for one of Harvey's- say
of equal value, and held it for a year (enjoying it as part of our
collections) we could then donate the respective works at their fair
market value as established by what similar works sell for in our
galleries or whatever. Nils Lou in sunny Oregon
On Wed, 15 Jan 1997, Harvey Sadow wrote:
> ----------------------------Original message----------------------------
> LINDA BLOSSOM wrote:
> >
> > ----------------------------Original message----------------------------
> > Hello all,
> >
> > Kirby asked me about donations and I was reading in the tax guide for small
> > businesses, (publication 334) and on page 33 it says this: " If you donate
> > any inventory item to a charitable organization, the amount of your
> > duductible contribution is the fair market value of the item, less the
> > amount that would be ordinary income if you had sold the item at its fair
> > market value on the date of the gift." I have read this a few times and
> > still don't quite get it. What exactly is "ordinary income"?
> >
>
> Hi Linda,
> What this boils down to is that you can claim the cost of materials!
> If Midas, himself, bought one of your pieces and donated it, he could
> claim the full retail value of the work, if he owned it for one year.
> WRITE YOUR CONGRESSMAN ABOUT THIS. IT STINKS. Mention this to the
> people who ask you to donate your work to their charity or their
> auction. Perhaps you could suggest that you will be happy to comply
> when you receive a copy of their letter to their congressman. You could
> even offer to supply the letter! Thus spake Don Quixote, tilting at yet
> another windmill.
>
> cheers, Harvey Sadow
>
Bob Hanlin on mon 20 jan 97
I've been audited by the IRS and the guy that did my audit said that I
could only take off the cost of materials. I said OK and he asked if I had
deducted that elsewhere! That seems to me that if we donate a piece, we
donate it.
At 11:27 PM 1/13/97 EST, you wrote:
>----------------------------Original message----------------------------
>Hello all,
>
>Kirby asked me about donations and I was reading in the tax guide for small
>businesses, (publication 334) and on page 33 it says this: " If you donate
>any inventory item to a charitable organization, the amount of your
>duductible contribution is the fair market value of the item, less the
>amount that would be ordinary income if you had sold the item at its fair
>market value on the date of the gift." I have read this a few times and
>still don't quite get it. What exactly is "ordinary income"?
>
>On the kiln losses and things that don't sell and are scrapped, this is on
>page 35: " Unsalable goods are goods in your inventory that you cannot sell
>at normal prices or in the usual way because of damage, imperfections, shop
>we4ar, changes of style, odd or broken lots, or other similar causes,
>including secondhand goods taken in exchange, You value these goods at
>selling prices minus direct costs of disposition, no matter what method you
>use to value the rest of your inventory. If these goods consist of raw
>materials or partly finished goods held for use or consumption, they are
>valued on a reasonable basis, considering the usability and condition of
>the goods. Do not value them for less than scrap value." This subsection
>is under the valuing inventory section. It seems to me that by keeping
>track of these items and adding them to the ending inventory amount ( with
>an explanation for the amount) will reduce the cost of goods sold. This
>brings the cost of goods more in line with the sales. It would not look
>good to have a higher cost of goods than sales, even Brother Thomas doesn't
>do that. Now maybe I should go to a pile that I can show the auditor
>rather than throwing these items in my pond...
>
>
>Linda Blossom
>2366 Slaterville Rd.
>Ithaca, NY 14850
>blossom@lightlink.com
>http://www.artscape.com
>607-539-7912
>
>
Bob Hanlin
Oklahoma City, OK
bhanlin@ionet.net
Suzanne Storer on fri 24 jan 97
I haven't been staying up with this discussion so this may have already been
stated. In order to gain full tax benefit for donating a piece, I make a
deal with a friend who wants to donate a piece of equal value to mine to the
same cause. We then "buy" each others work for the agreed upon price
exchanging checks of equal amount. I then donate her work and she mine and
we each deduct the sale price from our taxes. According to my accountant
this is just fine and not any different from any other tax deductible donation.
Suzanne in snowy Utah where I tired out my new pair of shorter wider cross
country skis today and they're GREEEEEAT!At 10:48 AM 1/20/97 EST, you wrote:
Ernie vonBorstel on sat 25 jan 97
At 06:59 AM 1/24/97 EST, you wrote:
>----------------------------Original message----------------------------
>I haven't been staying up with this discussion so this may have already been
>stated. In order to gain full tax benefit for donating a piece, I make a
>deal with a friend who wants to donate a piece of equal value to mine to the
>same cause. We then "buy" each others work for the agreed upon price
>exchanging checks of equal amount. I then donate her work and she mine and
>we each deduct the sale price from our taxes. According to my accountant
>this is just fine and not any different from any other tax deductible donation.
>Suzanne in snowy Utah where I tired out my new pair of shorter wider cross
>country skis today and they're GREEEEEAT!At 10:48 AM 1/20/97 EST, you wrote:
>
It seems to me that this scheme doesn't work because you will have to show
an increase in your income due to the sale of your piece to your cohort in
crime and the deduction that you take for the donation of your friend's
piece will only offset the increased income from the sale. If you decide to
buy the piece for $100 and claim a $500 charitable deduction when you donate
it the next day It seems there might be reason for the IRS to question your
deduction.
Please let me know if I'm missing something or what your accountant's
reasoning was. Thanks
Ernie
Suzanne Wolfe on sat 25 jan 97
On Fri, 24 Jan 1997, Suzanne Storer wrote:
> ----------------------------Original message----------------------------
> In order to gain full tax benefit for donating a piece, I make a
> deal with a friend who wants to donate a piece of equal value to mine to the
> same cause. We then "buy" each others work for the agreed upon price
> exchanging checks of equal amount. I then donate her work and she mine and
> we each deduct the sale price from our taxes. According to my accountant
> this is just fine and not any different from any other tax deductible donation
But what about the fact that you now have to declare the money you
received from your friend as part of your income? Seems like a wash to
me.
Jeremy/Bonnie Hellman on sat 25 jan 97
Suzanne, of course, by purchasing each other's pots, each of you will
have "income" of the sale price. When you donate it, and take your
"deduction" you have reduced your taxable income by roughly the same
amount as you had increased it. You are thereby back at zero--no better
off than if you had done nothing. You may even have incurred an
additional tax because your next income is subject to self employment
(social security) tax (if you are self employed filing a Schedule C)
which is statutorily 15.3%, although effectively around 13.4% or so.
Furthermore, if you tax return income is above certain thresholds, you
are not entitled to your full Schedule A Itemized Deductions, because the
allowable Sch. A total is reduced by a computed percent.
While I agree that you can get the "full market value" of your donation
this way, you are also including the "full market value" in your gross
sales. It's not a great deal.
Bonnie, CPA in Pittsburgh, PA
>I haven't been staying up with this discussion so this may have already been
>stated. In order to gain full tax benefit for donating a piece, I make a
>deal with a friend who wants to donate a piece of equal value to mine to the
>same cause. We then "buy" each others work for the agreed upon price
>exchanging checks of equal amount. I then donate her work and she mine and
>we each deduct the sale price from our taxes. According to my accountant
>this is just fine and not any different from any other tax deductible
>donation.
>Suzanne in snowy Utah where I tired out my new pair of shorter wider cross
>country skis today and they're GREEEEEAT!At 10:48 AM 1/20/97 EST, you wrote:
"Outside a dog, a book is a man's best friend. Inside a dog, it's too
dark to read" Groucho Marx
" " Harpo Marx
"Time flies like an arrow. Fruit flies like an avocado" Att. to GM
Harvey Sadow on sat 25 jan 97
Suzanne Storer wrote:
>
> ----------------------------Original message----------------------------
> I haven't been staying up with this discussion so this may have already been
> stated. In order to gain full tax benefit for donating a piece, I make a
> deal with a friend who wants to donate a piece of equal value to mine to the
> same cause. We then "buy" each others work for the agreed upon price
> exchanging checks of equal amount. I then donate her work and she mine and
> we each deduct the sale price from our taxes. According to my accountant
> this is just fine and not any different from any other tax deductible donation
Suzanne,
The point here is that you have to claim the INCOME from the "SALE", so
it ends up being a wash and you have given your work away,again. This
says that your time and your skill have NO VALUE. Newt Gingrich gets
toclaim the full value of the donation , when he donates one of your
pots.
Sorry to be the bearer of bad news.
Harvey Sadow
Susan Benson on sun 26 jan 97
I am by no means an expert on taxes, etc. but wouldn't the idea of exchanging
pieces w/ a collegue work to get full market value on the donation IF instead
of purchased, they were given as gifts to each other, THEN donated? Seems to
me I remember that you can receive up to a certain $ amount as a gift each
year, and not have to claim it...
Please let me know if this would be a legal way to do this.
Susan
Nils Lou on sun 26 jan 97
You don't buy it from each other, you trade it; keep it for a year and
then donate. NL
On Sat, 25 Jan 1997, Harvey Sadow wrote:
> ----------------------------Original message----------------------------
> Suzanne Storer wrote:
> >
> > ----------------------------Original message----------------------------
> > I haven't been staying up with this discussion so this may have already been
> > stated. In order to gain full tax benefit for donating a piece, I make a
> > deal with a friend who wants to donate a piece of equal value to mine to the
> > same cause. We then "buy" each others work for the agreed upon price
> > exchanging checks of equal amount. I then donate her work and she mine and
> > we each deduct the sale price from our taxes. According to my accountant
> > this is just fine and not any different from any other tax deductible donati
>
>
> Suzanne,
> The point here is that you have to claim the INCOME from the "SALE", s
> it ends up being a wash and you have given your work away,again. This
> says that your time and your skill have NO VALUE. Newt Gingrich gets
> toclaim the full value of the donation , when he donates one of your
> pots.
> Sorry to be the bearer of bad news.
>
> Harvey Sadow
>
Suzanne Storer on sun 26 jan 97
First of all, this is not a crime. Yes, my business income increases
through the sale of my piece to my fellow artist for $100. I will then pay
more income tax due to this sale. I donate her piece for which I've paid
$100 as any other person would. It is a personal donation that is deducted
from my taxes like any other tax deductible donation. The end result is of
greater benefit to me than if I'd merely deducted the materials that went
into the piece that I ultimatley wanted to give. I cannot claim any more
than the $100 as a deduction, the amount I paid for her piece. Claiming
more than that would be dishonest. I don't like these type of shenanigans
either, but it's worth it to me in order to be able to deduct a fairer
amount when I donate work. 12:01 PM 1/25/97 EST, you wrote:
>----------------------------Original message----------------------------
>At 06:59 AM 1/24/97 EST, you wrote:
>>----------------------------Original message----------------------------
>>I haven't been staying up with this discussion so this may have already been
>>stated. In order to gain full tax benefit for donating a piece, I make a
>>deal with a friend who wants to donate a piece of equal value to mine to the
>>same cause. We then "buy" each others work for the agreed upon price
>>exchanging checks of equal amount. I then donate her work and she mine and
>>we each deduct the sale price from our taxes. According to my accountant
>>this is just fine and not any different from any other tax deductible
donation.
>>Suzanne in snowy Utah where I tired out my new pair of shorter wider cross
>>country skis today and they're GREEEEEAT!At 10:48 AM 1/20/97 EST, you wrote:
>>
>It seems to me that this scheme doesn't work because you will have to show
>an increase in your income due to the sale of your piece to your cohort in
>crime and the deduction that you take for the donation of your friend's
>piece will only offset the increased income from the sale. If you decide to
>buy the piece for $100 and claim a $500 charitable deduction when you donate
>it the next day It seems there might be reason for the IRS to question your
>deduction.
>
>Please let me know if I'm missing something or what your accountant's
>reasoning was. Thanks
>
>Ernie
>
Scott Finney on mon 27 jan 97
Isn't the IRS and its rules a true wonder?
There is another legal way to get your honest value on donated art work
and that is to have it appriased. With this document to establish market
value you should be able to deduct your donation a full market value.
Naturally you will have to bear the cost of the apprasail however.
Scott Finney
Clay Expressions
finney@linex.com
Robert S. Bruch on mon 27 jan 97
It seems as though the problem with a 'trade'
or mutual 'gift' is the valuation of the piece
that is to be donated. For noncash charitable
donations, you need to file IRS form 8283.
It lists columns of: Date of the contribution,
Date acquired by donor, how acquired by donor,
donor's cost or adjusted basis, fair market
value, method used to determine the fair market
value. For most (all?) of the people on this
list, this form renders 'gifting' your own work
relatively fruitless (JMHO).
--
Bob Bruch rsb8@po.cwru.edu
PJLewing@aol.com on tue 28 jan 97
When I donate a piece to an auction or other cause, the way I figure the
deduction is this:
Rather than just deduct the cost of the actual raw materials only in that
piece, I figure my total expenses for the whole year as a proportion of my
gross income. I figure that if my expenses were 50% (let's say) of my gross,
then 50% of the value of any one piece is what it cost me to make that piece.
So I deduct that percentage of the amount they sell the piece for. Or, if I
don't know that amount, that percentage of what I would have sold it for.
Whether this would pass muster with the IRS or not I have never (thank God)
had to find out, but my tax preparer tells me it sounds like a reasonable
argument to her, and does it that way for me. It does make it a bit more
fair than just deducting the dollar's worth or so of clay in some $50 piece.
Paul Lewing, Seattle
Bill Amsterlaw on tue 28 jan 97
On Mon, 27 Jan 1997 Scott Finney wrote:
>>
There is another legal way to get your honest value on donated art work and
that is to have it appraised. With this document to establish market value you
should be able to deduct your donation at full market value. Naturally you
will have to bear the cost of the apprasail however.
<<
Questions:
1. Can the "appraisal" be done by ANYONE familiar with the market value of the
item in question? ... or does an appraiser have certain legal qualifications?
2. Can the cost of an appraisal be deducted from income as a business expense?
- Bill Amsterlaw
Plattsburgh, NY
Richard Aerni on wed 29 jan 97
PJLewing@aol.com wrote:
>
> ----------------------------Original message----------------------------
> When I donate a piece to an auction or other cause, the way I figure the
> deduction is this:
> Rather than just deduct the cost of the actual raw materials only in that
> piece, I figure my total expenses for the whole year as a proportion of my
> gross income. I figure that if my expenses were 50% (let's say) of my gross,
> then 50% of the value of any one piece is what it cost me to make that piece.
> So I deduct that percentage of the amount they sell the piece for. Or, if I
> don't know that amount, that percentage of what I would have sold it for.
> Whether this would pass muster with the IRS or not I have never (thank God)
> had to find out, but my tax preparer tells me it sounds like a reasonable
> argument to her, and does it that way for me. It does make it a bit more
> fair than just deducting the dollar's worth or so of clay in some $50 piece.
> Paul Lewing, Seattle
Paul,
I used to do exactly that as well until I consulted with a CPA this
spring to have him "check" my return to see if all was well. He noted,
and rightly so, that I had already deducted my costs of production
(materials, gas, utilities, advertising, etc) on my Schedule C and
therefore this was a double deduction which would earn me no good favor
with the IRS. so now I still donate to the worthy causes of my choice,
but take no deduction on the donation. I do try to educate them that
there really is no tax deduction for an artist donation, though (very
few of them understand the point, either). Guess we'll just have to add
this one to the lengthy list of unfair practices in our tax system.
richard aerni
bloomfield, ny
Joan Lovell on wed 29 jan 97
In a message dated 97-01-28 07:17:23 EST, you write:
<< On Mon, 27 Jan 1997 Scott Finney wrote:
>>
There is another legal way to get your honest value on donated art work and
that is to have it appraised. With this document to establish market value
you
should be able to deduct your donation at full market value. Naturally you
will have to bear the cost of the apprasail however.
<<
Hmmmmmm. My CPA husband says this is not kosher. He works with several
artists and says - it's costs of materials...period. He's checking out the
"I'll buy your if you'll buy mine idea" -- you could keep your income down by
selling your piece to your friend for less than the going rate, or, better
yet, gifting it to the friend. That wouldn't diminish the value. That would
be determined by what people usually pay for your pieces. If my friend gives
me a signed Picasso, or I find one at the flea market and purchase it for $2,
that doesn't diminish the value of it!
As far as the ethics of it go....I guess doing this on a very small scale
doesn't bother me. I wouldn't be doing it to "get the deduction". But
recently I was prevented from donating a piece to a charity art event
recently because I just couldn't give away 40 hours of labor for a deduction
of $15.00 in materials. Had and friend and I mutually donated one another's
works for a deduction that was more representative of the time, love and
labor involved, everyone would have benifited.
Yours,
Joan Lovell - wherer there's a wet cat in the window
Robert S. Bruch on thu 30 jan 97
In response to Joan Lovell's comments:
Joan got to the crux of the problem
when she commented on the value of a Picasso.
The problem with *most* ceramic artists makinbg
donations of their own work lies in values in
the secondary market for ceramic wares. I would
imagine that with few exceptions, modern art or
craft works made by artists who are still alive,
which probably applies to many on this list,
does not have a strong value in secondary market
sales. You may be able to get a fair price at a
fair or through a gallery. How easy would it be
for the purchaser to get that same price if they
went back to the gallery or an auction house to
resell that work five years after purchase? That
is the value which an appraiser might be forced
to consider. The government is likely to view that
$100.00 platter with $30.00 worth of materials and
costs might sell for $20.00 at a flea market as
used merchandise and base the donated value accordingly.
What are the odds of being audited? Probably not
great. However, the question to ask yourself is do
you want to defend the postion you take in the
event that you are audited?
--
Bob Bruch rsb8@po.cwru.edu
Dave and Pat Eitel on thu 30 jan 97
I'm with Richard Aerni on this one. Silent auctons are a major vehicle for
fundraising in our neck of the woods--churches, schools, civic
organizations all sweem to have them. We contribute to just about everyone
who asks--usually about a $20 piece--sometimes less, sometimes more. I
don't even keep a record of these bor all the reasons mentioned earlier in
this thread--what's the point of keeping track of the cost of materials in
a $20 bowl? The deductions for the whole year wouldn't amount to anywhere
near the time I'd spend keeping the records, I think.
But I continue to make these donations because they are good for the
community and they are good for me. People see my pots in their church
basement or school cafeteria who might otherwise not come to the shop--I
consider that the real value of the donation to me.
Later...Dave
Dave Eitel
Cedar Creek Pottery
Cedarburg, WI
pots@cedarcreekpottery.com
http://www.cedarcreekpottery.com
Jeremy/Bonnie Hellman on thu 30 jan 97
Richard- your CPA was absolutely right. This is what I have been saying-
namely that if you take an accurate ending inventory (finish goods, WIP
(work in process) and raw materials), everything else used becomes a
deduction. It's a deduction whether it went into a finished pot that was
sold or an uglypot that was trashed. However, sometimes people donate to
charities just for the sake of supporting the charity, receiving nothing
directly in return-just for the sake of doing something good for
humanity. When I prepare income tax returns under the VITA program
(Volunteer Income Tax Assistance), I am only entitled to deduct my OUT OF
POCKET expenses, which are my auto expenses and any parking expenses I
pay. I cannot deduct anything for the value of my time. This does not
mean that my time is worthless; it just means that I don't get a tax
deduction for it. I do get the satisfaction of helping people who could
not afford to hire a private tax preparer. The same is true when a
professional artist donates a ceramic pot. Your materials are already
deducted on your tax return, but you don't get a tax deduction for the
value of your time in creating the pot. Bonnie, CPA in Pittsburgh
>Subject: Re: More on taxes, donations, losses
>Sent: 1/29/97 9:08 AM
>Received: 1/29/97 10:01 AM
>From: Richard Aerni, rcaerni@servtech.com
>Reply-To: Ceramic Arts Discussion List, CLAYART@LSV.UKY.EDU
>To: Multiple recipients of list CLAYART, CLAYART@LSV.UKY.EDU
>
>----------------------------Original message----------------------------
>PJLewing@aol.com wrote:
>>
>> ----------------------------Original message----------------------------
>> When I donate a piece to an auction or other cause, the way I figure the
>> deduction is this:
>> Rather than just deduct the cost of the actual raw materials only in that
>> piece, I figure my total expenses for the whole year as a proportion of my
>> gross income. I figure that if my expenses were 50% (let's say) of my
gross,
>> then 50% of the value of any one piece is what it cost me to make that
piece.
>> So I deduct that percentage of the amount they sell the piece for. Or, if
I
>> don't know that amount, that percentage of what I would have sold it for.
>> Whether this would pass muster with the IRS or not I have never (thank God)
>> had to find out, but my tax preparer tells me it sounds like a reasonable
>> argument to her, and does it that way for me. It does make it a bit more
>> fair than just deducting the dollar's worth or so of clay in some $50 piece.
>> Paul Lewing, Seattle
>
>Paul,
>
>I used to do exactly that as well until I consulted with a CPA this
>spring to have him "check" my return to see if all was well. He noted,
>and rightly so, that I had already deducted my costs of production
>(materials, gas, utilities, advertising, etc) on my Schedule C and
>therefore this was a double deduction which would earn me no good favor
>with the IRS. so now I still donate to the worthy causes of my choice,
>but take no deduction on the donation. I do try to educate them that
>there really is no tax deduction for an artist donation, though (very
>few of them understand the point, either). Guess we'll just have to add
>this one to the lengthy list of unfair practices in our tax system.
>
>richard aerni
>bloomfield, ny
"Outside a dog, a book is a man's best friend. Inside a dog, it's too
dark to read" Groucho Marx
" " Harpo Marx
"Time flies like an arrow. Fruit flies like an avocado" Att. to GM
Martha Muzychka on fri 31 jan 97
Dave wrote
> ----------------------------Original message----------------------------
>
> But I continue to make these donations because they are good for the
> community and they are good for me. People see my pots in their church
> basement or school cafeteria who might otherwise not come to the shop--I
> consider that the real value of the donation to me.
>
This is the reason I donate similar items. It's still cheaper than
advertising (paid that is). Plus you earn karmic points.
Martha
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