Tax Deductions for Pro Bono Work
I’ve noticed a lot of my recent traffic is coming from searches about tax deductions for pro bono work. These searchers are all heading to my article on “”http://grundyhome.com/2007/02/06/how-to-work-pro-bono/“>How to work pro bono,” where I briefly note that you can’t deduct time you spend working on pro bono projects. As this is clearly a big question for a lot of folks, I want to elaborate.
Disclaimer: I’m not a lawyer or accountant. If you trust a blog for official legal or tax advice you probably shouldn’t be running a business. If anything, this should help you ask your accountant the right questions.
Taxes. You can’t get a tax benefit for donating your time. You can only deduct any out of pocket expenses. Ask any qualified accountant for advice. They’ll all tell you that you can’t save on your taxes by donating time.
What can’t you deduct?
Time. Your time doesn’t have a tangible value. From IRS.gov: “Although you cannot deduct the value of your time or services, you can deduct the expenses you incur while donating your services to a qualified organization.” The obvious reason for this is to avoid abuse – I could claim my time is worth $500/hour and donate enough hours to avoid taxation.
So what can you deduct?
Expenses. If you spend money on the project (a domain name, hosting, etc.) that’s deductible. Those are the obvious, out-of-pocket expenses where your contribution cost you money.
Payroll. If you paid your employees to work on the project, that may be deductible. It’s an out-of-pocket expense. However, for small businesses – an LLC or S-Corporation – payroll is a normal deductible business expense anyway. So there’s really no benefit there. And if you’re not incorporated, this isn’t likely to apply anyway.
What Not to Do: the End Run
A lot of people try to twist things around by taking payment and then turning around and donating the total. So you do a website for a church, they pay you $3000, and then you donate the $3000 back to them. This is a terrible idea. While you do get a $3000 deduction on your taxes, you also have an additional $3000 of taxable income. The deduction won’t cover the taxes you pay on that income, and if it sends you into a new tax bracket you could end up paying more in taxes than you would otherwise.
Work out a discount. I offer non-profit pricing and follow a normal contract. Or if money isn’t a possibility, there are other benefits to working with a non-profit.