"The hardest thing in the world to understand is the income tax."
Are Donated Services Tax Deductible?
Author: Brad Howland
First Posted: June, 2003
It’s a common question among musicians that applies to every entrepreneur: if I play a concert for free, can I get a charitable donation receipt for the value of my services and deduct it from my income tax?
Most musicians probably agree that donated services should be tax deductible! After all, gifts to qualified charities of art work such as paintings are considered to be charitable donations, valued somewhere between cost and fair market value. "So," the musician muses, "a musical performance is a tangible work of art just like a painting...right?"
Unfortunately, both the IRS and CCRA see things a little differently than we do. Neither tax department recognizes donations of time and effort as being the same thing as donations of property or cash. Their logic appears to be that cash donations are made with after-tax dollars while time and effort are not. You paid income tax on your cash when you earned it, so if you donate it away you should be entitled to get that tax back. Time and effort, however, aren't subject to income tax in the first place.
You can agree with the charity that you will bill it for your services, and then give a cheque back as a charitable contribution. This little manoeuvre satisfies the requirement that your donation be made with after-tax dollars, but you will be obligated to include the cash on your tax return as employment or business income. Whether this benefits you or not depends on the amount of the donation. In Canada, for example, business income of $2-300 combined with an equivalent donation will probably result in more tax owing, because of the need to pay CPP on business income. But business income of $4-500 plus a donation will likely decrease tax owing, because of the higher tax credit allowed (29%) on donations over $200.
Related Web Sites
Canada Customs and Revenue Agency
Interpretation Bulletin IT-110R3
Gifts and Official Donation Receipts
Internal Revenue Service
Charitable Contributions (pdf)
This information is provided without warranty of any kind. All readers wishing to take advantage of the information offered here should consult a qualified income tax preparer. In no event will Brad Howland, Howland Tax Services, or this website be liable for any damages, including lost profits, arising out of the information offered on this website.