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Open Source Tax Credit?
An Onymous Coward writes: "While looking for a few loop holes in the tax code, I ran across this interesting IRS Regulation.
I was wondering, if using this if Open Source programming is tax deductable? Linked from here under Credit for Increasing Research Activities." It's an interesting-sounding twist in the tax maze, but probably better to get your certified tax accountant to sign off on it first. Note that the second link there goes to (allegedly) "Plain Language Regulations," but they remind me of the book Unbridled Power intead. Does anyone else have any good hindsight on how techies can / should approach their tax forms?
Heck, and if you can figure a way to end up owing the revenue folk each year, *DO IT.*
Otherwise, you're basically floating them an interest-free loan. And that's just senseless.
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Don't like it? Respond with words, not karma.
If you OWE money on your taxes there isn't a single good reason not to earn interest on it in your interest-bearing-account-of-choice up until the last possible day.
If you get a refund due, absolutely, file as soon as you can, but if you owe unto Caesar, then there's no reason to give it up any sooner than the last possible date.
D
You need to be more specific. According to the document you linked to:
SUMMARY: This document contains proposed regulations under section 41 of the Internal Revenue Code of 1986 describing when computer software which is developed by (or for the benefit of) a taxpayer primarily for the taxpayer's internal use can qualify for the credit for increasing research activities.
Just because it's open source doesn't mean you developed it. Open source usually means you're using someone else's work as well. Furthermore, I'd doubt you'd be able to pass the test of saying it's for your internal use - especially if you work collaboratively on it, and upload your source code to external trees frequently.
As I read it, this is for companies/individuals who develop their own software, so that they can take advantage of the R&D credits. The government smiles on those who do their own R&D.
So, going by what you asked, if you're simply using Linux and expecting a tax credit, that's ridiculous, because it's not developed primarily by you, for your internal use. (Unless your name is Linux Torvalds or Alan Cox.) If you're rolling your own code that you use for your own internal use (logically speaking, that could even be batch programming) then you might be able to use this.
What's your damage, Heather?
First of all, you cannot deduct the value of your time. This is one aspect of the tax code that really sucks, but it was put in place to stop egregious claims by rich folk who used to write off vacations. GWB should find a way to loosen up on this.
If you can come up with a defensible fair market value for an original piece of software you created, I don't see why you couldn't claim that. Companies already take the value of software licenses donated, so assigning full rights to a tax deductable charity should in principle work too (caveat -- there may be precedent against this which overrides any kind of reason so check with your accountant). The problem is that licenses have easily determinable market values, whereas a new work could be pig-in-a-poke. Supposing Digital Creations wished to assign rights to Zope to FSF. What is the value of that? It overlaps with some valuable commercial products such as Cold Fusion, but it isn't really comparable.
It may be that this would work best if you have a closed source product which has a track record of sales. You can point to past sales as evidence for putting a market value on the product. The problem is that abandonware is usually not fabulously valuable; this would only work if a company is open sourcing a valuable product for strategic reasons.
In any case, if your work consists of changes to already open sourced works, you probably can't claim anything, because you have no ownership stake in the original product or any derivative works.
Finally, be aware that anything you claim as a gift must be claimed by the recipient as income. While they do not pay income tax, it will create income on their income statement, and in subsequent years it will likely need to be depreciated, producing paper expenses. The reason this is important is that many kinds of charities (probably not the FSF) are dependent upon the generosity of old money farts who like to back sure winners, with their investments or their philanthropy. I've been in the position of considering rejeting software gifts because it would make us look financially unstable.
Post may contain irony: discontinue use if experiencing mood swings, nausea or elevated blood pressure.
Last session there was a bill, the Artists' Contribution to American Heritage Act, that would have allowed the picture painting scenario you describe, see Sen. Leahy's letter. It seems likely that it would have applied to software but its not clear how it would be applied to Open Source software because it is unclear how to appraise Open Source software. See the thread on the Union for the Public Domain's mailing list.
In the discussion, according to RMS companies (not individuals) can already claim a credit for donations of proprietary software to FSF (which would presumably "free" it) or other such organization, but that he was not aware of any such situation where that had occured. It would surprise me if no companies would take advantage of this as companies like IBM are donating copyrights on code to FSF. I believe that patches to GCC must have copyright assigned to FSF.
The bill didn't pass, it will probably be reintroduced this session.
Of course, any discussion of taxes and free software would be incomplete w/o mentioning the Hacker Tax Credit.
Get some professional, personal, specific advice from someone who is accountable for the answers they provide.
I completely agree. This is as silly as looking online for technical information, trying to work on your own car using some sort of "book" for the consumer, or asking your friends for advice about personal problems. We have professionals to do these things for us.
Anybody who is foolish enough to ask anybody other than a professional gets what they deserve; life is too complicated to be dealt with by amateurs. Sure, other people might have "experience" that appears to be relevant, but only a trained expert can tell the difference, so don't risk using your own judgement. Some might suggest that talking about things with your pals first might help you collect your thoughts, but they're just likely to steer you wrong; after all, they're only amateur friends, not professional ones.
So in sum, if you aren't paying for it, it isn't worth getting. This poster has wisely pointed out how foolish it is, and thank goodness he is nipping this tendency in the bud. Next thing you know people will be thinking they can use software that they don't pay for, or having a girlfriend who doesn't charge them by the hour.
Hmmm... I gave my accountant about $500, and I get about $8000 back this year. I see a correlation here. Could somebody please give their lawyer all their money and let me know if they get millions?
You always hear (friend of a friend) stories about people who paint pictures, value them at $1000, then donate them to the local Red Cross or YMCA.
My impression is that's a good way to get yourself audited, but if you can sell other paintings for $1000, it is legal.
I've had companies charge $150 an hour for my time, so why can't I donate code to the FSF or other charitable group, and get myself a nice fat charitable donation?
Bryan
Does anyone else have any good hindsight on how techies can / should approach their tax forms?
With a 10 foot pole?
Someone posted an urban legend about a person making a painting, valuing it at $1000 and donating it to the Red Cross, claiming a tax writeoff. While this could happen, the artist would not be writing off $1000, s/he would be writing off the cost of the materials to make the painting. The IRS runs itself bookkeeping on reciepts. What reciepts are there in this picture? There is no $1000 receipt (unless the painting materials cost $1000). If you honestly think you can look at an IRS agent and claim $1000 without a receipt backing it, you deserve the fraud charges they will lay on you.
One other thing that should be pointed out is that even though the painter writes of the cost of the materials, that doesn't mean he gets the cost of the materials back from the Government. It's not like the government is paying him to make paintings for the Red Cross. It just means that his taxable income will be reduced. I paid about 29% on my taxes (no state tax in Florida), which means I would get 29% of the material cost back.
Bringing this back to the task at hand: the tax credits are based on the cost of developing the software. This makes sense when you look at other things the IRS allows businesses partially deduct. If a business cannot find shrinkwrap software to fulfill it needs, and it spends money to develop software, then part of the money it spends can be deducted. If someone pays you to develop open source code for their internal use, then they can deduct some of that cost.
You cannot just say "I bill at 150/hr, and worked 1000 hours on this open source project, so I'll deduct 150,000 dollars from my income". Think of it this way, you didn't loose the 150,000, you just didn't gain it. Since you didn't gain it, it wasn't taxed anyway. Since it wasn't taxed, it isn't subject to a deduction/writeoff/credit.
This all stems around the two immutable facts: the IRS taxes income, and you cannot get more money back from the IRS than you put in*.
*: actually this isn't totally true. There are certain rebates that you may qualify for that will have them sending you money, even if (especially if) you made no income that year. But they are always a fixed amount, and very little (on the order of hundreds).
-no broken link
As mentioned earlier, in order for you to take deductions, you must have income. For many types of income, such as hobby income, you can only take deductions to the extent of your income. No money to be made here.
Now on to the R&D Tax Credit - that is what those in the tax business call it. The idea of this credit is to get US businesses to invest in R&D. The tax law usually responds to the current trends in the economy. This credit came about when there was a lot of talk and attention about the US falling behind in technology development.
Now let's dive into this section of the code - which is section 41 if you are interest. First, the credit is not for 100% of all R&D expenses. It is actually only 20% of expenses that exceed a calculated base amount. There is a list of what expenses qualify, and they have to be actual out of pocket expenses. Not working and sitting at home working on open source projects does not qualify as an expense. The base amount is calculated by using the average annual gross receipts of the taxpayer. No receipts = base amount = no credit. Qualified Research is the next issue. Found in 41.d.1.a Qualified Research is undertakenfor the purpose of discovering information which is technical in nature AND the application of which is intended to be useful in the development of a new or impoved business component of the taxpayer. Paragraph D also has some restrictions on software credits.
As I was just reading through this section of tax code, my engineer bf walked in and said all that jibberish made no sense to him. I think him trying to read tax code is like me trying to read the Stevens book on that TCP/IP stuff.
This sounds like something you should ask an accountant, and, if you can get away with it, tell Slashdot... All that this sort of question will do is get a while lot of speculation, and an overuse of the acronym IANA(T)L...
From a brief glance, though, it doesn't seem like it would qualify. This cut applies to software produced for internal use, from the looks of it, and Open Source projects are meant to be used by the community as a whole... However, remember... IANAL...
When encryption is outlawed, ?o'AZ-,++o+i++##4AoA+-/-C++bI+/.+~
The software is not commercially available for use by the taxpayer (as where the software cannot be purchased, leased, or licensed)
Wouldn't the GPL or whatever the hell Open Source "License", just kill all those thoughts of geeks getting a tax break.
Primarily for internal use. All relevant facts and circumstances are to be considered in determining if computer software is developed primarily for the taxpayer's internal use. If computer software is developed primarily for the taxpayer's internal use, the requirements of this paragraph apply even though the taxpayer intends to, or subsequently does, sell, lease, or license the computer software.
Suggestion would be to honestly ask a CPA or so, someone is likely going to end up shafting themselves if they think that program they just wrote for SourceForge qualifies for a break.
boobs
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