Photo by John Morgan on Flickr.com
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.
Hi Jim,
If I buy a piece of art for $500, and donate it to a charity for them to auction off, I can claim the full $500 as my deduction. I think you misread what I said.
Now, if I buy a piece of art at a charity auction, then I would only be able to claim whatever I paid over the fair market value of the art as a tax deduction. Two different things.
WRONG – you really need to reword the first example. Many tax preparers believe that the amount paid for an item at a charity auction is tax deductible as you stated. A buyer may only claim a charitable income tax deduction for the excess of the amount you pay for an auction item over the item’s current market value which should be provided by the charity or donor. Please refer to IRS publication 526, second or third page.
Hi Doug,
I like that idea!
So trade with other artists over the years so each of you can donate at a proper rate later on. The value of the art traded today may only be $50, but could be $5,000 in the future.
Hi Ricardo,
As far as the IRS is concerned, donating your time is not a tax deduction. As an artist, when you donate a painting – most of the value of your painting is your time. So it’s not deductible – only the value of the supplies used to create the work. As long as H&R Block and your CPA offers you their Peace of Mind guarantee that they will pay any tax you owe if you get audited – let them claim your art on your return. If they don’t guarantee their work – then that’s your risk.
For the past 6 years I have donated paintings to charity. I itemize (deduct) my expenses separately and have had no problem whatsoever. If I’m getting taxed on let’s say 20.000 and donate a painting accepted by the charity for 2000, I get taxed on 18.000. This has been done originally with H&R Block and the past three years with a CPA. I’m confused by your article.
I normally toss all pingbacks into the spam folder, but Mark Tisdale’s pledge to donate 80% of the profit on his Gotham By Night – NYC photo to the Aurora Colorado victims earned a special spot on my blog. Check it out, it’s a great photo: http://www.marktisdalephotography.com/2012/07/the-victims-in-aurora-colorado/
Yes, that works just fine.
Would it still be legitimate if the corporation in question was wholly owned by the artist?
Marty,
Yes that works! That’s exactly right. You get cash and the charity gets the art. The only downside is to the corporation–the value of the deduction is less than what they pay for the art. But–if you’ve got a corporation willing to do that, that’s great.
Here’s one more idea too. Let’s say you create an art piece that you would normally sell for $1000. You sell it to the corporation, instead of giving it to the charity immediately, they hold it for a year and a day. After a year, lets say the value of your art doubles. The corporation donates the art to charity but now they get to claim a $2000 write off instead of a $1000 write off. The catch here is they have to hold it for a year and a day, plus the value of your art would need to increase. It’s just something to think about
I’m creating an artwork intended for a charity. I hear that I can’t give it to the charity and receive much benefit.
But what if I pass it through an intermediary — a corporation with enough income that they could use a tax receipt? I sell it to the corporation, get the cash. They donate it to the charity — and they have the bill from me saying how much they paid for it — and get a charitable receipt.
Does that work?
Hi Mimi,
Thanks for your comment. In fairness to your art dealer, here in Missouri where I am, you can claim the fair market value of your art on your Missouri tax return. Problem though, you can’t do it on your federal. If you try to claim fair market on your Missouri and “cost” on your federal then you’ll have a variance–the accounting cost would most likely be more than the money you saved.
PS: I clicked on your website, Wow! Lovely work.
Thanks very much for your article. I decided a few years ago not to donate any more of my paintings to charities for all the reasons you state in your article. My art dealer told me he thought the law had changed and that I could now donate the fair mkt value. During an internet search on the issue I ran across your article which explains the current situation very clearly. I thank you for writing it.
Mimi Jensen