Tax Tips for Artists: Why You Might Not Want to Donate Your Art
If you’re an artist, you may have been asked to donate a piece of your artwork for a good cause. You might have also been told that it’s good PR for you, because people at the event will get a chance to see your work and bid on it. And of course you’ve been told that your donation is tax deductible.
While it’s true that your donation is deductible, it’s not nearly as deductible for you as it is for me. Come again? You heard me right—your art donation is not as deductible for you as it is for me. Let me give you an example: Let’s say you donate a painting that would normally sell for $500. If I bought that painting and donated it to a charity, I’d get to write off the full $500 on my tax return as a charitable deduction. If you donate that painting instead, you can only write off the cost of the materials that you used to create that painting—depending upon what materials you’re using, that’s maybe $50 to $100.
Additionally most artists are sole proprietors, their art income goes on a Schedule C on their regular 1040 tax return. Your charitable donation can’t be counted as a business expense, it must go on your Schedule A with your other personal itemized deductions. If you don’t already itemize your deductions on a Schedule A, that donated painting gives you no tax benefit whatsoever.
I’m not saying that you can never donate to charity, I like charities and I think they deserve donations. It’s just that when you donate your art, you’re not getting much bang for your buck. So what are your alternatives?
One thing is to pay to “advertise.” For example: I support a small, local ballet company. I used to just donate money to them, but now instead I purchase an ad in their performance program. They get the money they need and I get a business deduction for advertising. This is especially good for me. Before, being in the 25% tax bracket, my $100 donation was worth $25 off my taxes. Now, as a business expense, my $100 advertisement reduces my taxes by $40 ($25 from my regular tax plus an additional 15% for my self-employment taxes.) The advertising option gives you the best tax value on your donation because you can use it to offset your self-employment taxes.
Do be careful about the charity advertising though. I once did an ad thinking I was supporting a local organization, when really the money was going to an advertising agency. The organization got some money, but most of it went to the promotional company. I won’t make that mistake again.
Another option for you is to donate the profits from one of your art pieces. For example, let’s take that $500 painting; assume you paid $100 for your materials,that’s a $400 donation to the charity. Most likely, that’s a better donation than what the charity would gain if they auctioned one of your pieces off. If you’re in the 25% tax bracket, you still get a $100 reduction in your taxes. It won’t help with your self-employment tax, but you do get the good feeling of making a donation and your art work sells for its actual retail value instead of some discounted auction price (another disadvantage of donating your art for charity.)
There are many worthwhile causes out there that need and deserve your help. If providing a piece of your art work is how you want to help, by all means do it. Just remember, it’s not your best tax strategy.