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Tax Write-Offs For Free (As In Speech) Work?

Posted by kdawson on from the time-is-money-isn't-it dept.

deuist writes "Several years ago I wrote a book called The Not So Short Introduction to Getting Into Medical School (PDF) and released it online under a Creative Commons license. I have been asked several times to publish the text so that I can make money off of it. The book has become quite famous among pre-med students and is now available from the Princeton Review as a free CD that is given to pre-medical interest groups. My question to the Slashdot community involves claiming this work as volunteering for tax purposes. Have any of you had any success with releasing free software and then writing off your time when April 15 rolls around?"

12 of 198 comments (clear)

  1. I write off thousands every year to OSS by hacker · · Score: 5, Informative

    I've written off thousands of dollars every year to OSS, and continue to do so. I have a stellar CPA who was able to find all of the legal places where I can write off money. Here are some of them:

    1. My vehicle gas/travel to and from our monthly LUG meetings
    2. The telephone line into my home, where my DSL is connected (write code at home, upload to server using that connection)
    3. A portion of the monthly power bill, used to keep that DSL, servers and equipment running which is dedicated to the pursuit of writing OSS
    4. The cost of my laptops (running Linux) which is used to write, test and maintain OSS software
    5. The cost of my VMware Workstation license, used exclusively to test code in operating systems I do not run natively
    6. A portion of the taxes on my home, which is dedicated office space, used to write/maintain OSS software
    7. All of the costs from my upstream provider's hosting ($150/month) which is used to host my own projects, as well as those from other FLOSS developers
    8. All of the donations given to me/our projects via PayPal (it's "income", not a "gift", so treated accordingly)
    9. Commission from the Google and LinkXL banner ads run on some sites (used to pay for the hosting and power of said sites)
    10. ..and so on.

    My first suggestion would be to interview and find a top-notch CPA, and book an appointment with him to pour over your finances to see where things can be deducted. They can also retroactively go back years and reclaim funds you did not claim the first time around, if you miss critical deductions.

    1. Re:I write off thousands every year to OSS by the+eric+conspiracy · · Score: 5, Informative

      Expenses that you pay out of pocket as part of volunteer activities to a not profit organization are generally deductible. The actual time is not.

      www.irs.gov/pub/irs-pdf/p535.pdf

      http://www.irs.gov/publications/p526/ar02.html#d0e867

    2. Re:I write off thousands every year to OSS by Anonymous Coward · · Score: 3, Informative

      I am somewhat aghast that this incredibly ignorant comment was modded insightful. Many, many CPA's (full disclosure, including myself) specialize in tax strategy, planning and compliance. The tax advice you can receive from a CPA is often as good as, if not better than advice you could receive from an attorney.
      For today's anecdotal fact, I provide tax expertise to several law firms and their clients. The fact that these firms outsource their work should give you an indication of the relative quality of our work.

      http://www.ey.com/global/content.nsf/International/Services_-_Tax
      http://www.pwc.com/extweb/service.nsf/docid/efee1aa2f6b3a99485256fbe0060ff96

    3. Re:I write off thousands every year to OSS by agbinfo · · Score: 2, Informative

      First, I live in Canada so tax laws are different. Second I am not an accountant.

      Here we can deduct some expenses for paid work as well - there are limits. Also, if you have a single employer/contractor, it's considered differently so as to avoid people deducting salaried work expenses; These tax deductions are mostly for contract and consultant work. As far as I know, you can't deduct expenses for work you give away - unless it's a registered non profit organization and in this case you would be looking at charity deduction instead.

      The reason for this is that it's expected that you are in the business to make a profit from the work and will therefore pay taxes. If you deducted more expenses than revenue for 3 or 4 years in a row, you could reasonably expect a visit from the tax man.

    4. Re:I write off thousands every year to OSS by stephanruby · · Score: 4, Informative

      CPAs are accountants.

      Yes, CPAs are accountants. But just to be clear, being an accountant doesn't necessarily mean you're a CPA. In fact, less than 20% of accountants are even CPAs.

      CPAs are not for tax preparation. You have a question about the tax code, you ask a tax lawyer, not a CPA.

      No, it's the tax lawyers that shouldn't be used for tax preparation. "In most U.S. states, only CPAs who are licensed are able to provide to the public attestation (including auditing) opinions on financial statements." http://en.wikipedia.org/wiki/Certified_public_accountant

      Tax lawyers are too highly specialized. Now don't get me wrong, tax lawyers will be able to give you very a precise answer about something that falls within their narrow niche of experience, and they'll be able to give you an answer as long as you already know which right questions to ask, but they won't necessarily have the general legal knowledge of a CPA. And yes, CPAs have general legal knowledge, if you just take a look at their exam sample books, I think you'll see that the legal knowledge and the legal minutiae represents the bulk of their exam, and that the accounting part is really the easiest part they have to know.

      So not only using a Tax Lawyer would probably be overkill, but he would also probably miss important deductions because he'd miss the bigger picture that comes with the experience of preparing taxes and signing his names to them day-in and day-out (that being said, the specialization trap can also apply to CPAs as well, so for instance a CPA who passed his CPA state bar exam twenty years ago and who isn't used to doing taxes at his day job -- will most likely not be a very good choice either).

    5. Re:I write off thousands every year to OSS by Arroyodude · · Score: 5, Informative

      ...the fact that you are using a CPA for tax prep, and suggesting that others do so as well, scares me. CPAs are not for tax preparation. You have a question about the tax code, you ask a tax lawyer, not a CPA. CPAs are accountants.

      Wow! Where do I start, except to say that I'm an Enrolled Agent, meaning that I'm authorized ("licensed" as it were) by the IRS to represent taxpayers before all levels of the Internal Revenue Service." In other words, I'm a tax professional with a certification that goes back well over 100 years. Attorneys have had that right for less time and CPAs for a lot less than that. I'm also the tax manager in a small but nationally recognized CPA firm. Most CPAs (including all of the final 4) do lots and lots of tax work, much of it referred by tax attorneys who, for the most part, handle tax controversy matters and answer questions a lot harder than KDawson's. And they do so somewhere north of $300-$400 an hour if they're even half-good. I'll leave it to others to respond to the original poster's query, but will confirm that, no, you cannot write off your time. The tax rules can be complicated (and just because your accountant/lawyer/taxguy says it's so doesn't mean it will be upheld on audit unless the facts support it). Find a good CPA who knows your industry, or better yet, an Enrolled Agent. Or get a referral from a tax attorney.

    6. Re:I write off thousands every year to OSS by Russ+Nelson · · Score: 4, Informative

      Lemme see. 501(c)3's: The Free Software Foundation, Software in the Public Interest, the Gnome Foundation, the Open Source Initiative, the Perl Foundation, the Python Foundation, the Apache Software Foundation, the Public Software Fund. I'm sure I've missed some.

      You can't swing an open source cat without hitting a 501(c)3.

      --
      Don't piss off The Angry Economist
  2. NO by larry+bagina · · Score: 5, Informative

    to get a tax write off, you need to donate money (or materials, which cost money at some point). Your time has no value for tax purposes.

    --
    Do you even lift?

    These aren't the 'roids you're looking for.

  3. Ask the IRS... by Yosemite_Mark · · Score: 5, Informative

    From Tax Publication 526, under the heading "Not Deductable As Charitable Contributions" : "Value of your time or services". Many out of pocket expenses you incur while serving as a volunteer are deductible, though.

  4. No go.... by Panaflex · · Score: 4, Informative

    From my understanding, volunteer work is not tax deductible. Tangible assets and money given (like miles driven, money and items donated) may be deductible in certain situations.

    In other words - you need receipts for things you used in the service of making your work for non-profits. And, technically speaking, you're going to need a 503(c) charity status as well.

    If you want to run a 503(c) and give it away, you can certainly do that. But the only money you would be able to deduct is the money you would spend on the creation and operation of the charity organization.

    Disclaimer: You milage may vary, offer not valid in the state of California, I'm not a lawyer and you're likely to end up in Gitmo following my advice, married with 16 children, and bald. Some people experience adverse reactions to this advice, such as lucid dreaming, extended erections, overgrown toe and nose hair, and quite possibly death by shotgun in the night. Drink responsibly.

    --
    I said no... but I missed and it came out yes.
  5. The right place to ask by bferrell · · Score: 2, Informative

    is a CPA or tax lawyer

  6. Sorry, you took the wrong path to a tax deduction. by Catalina588 · · Score: 2, Informative
    No, you cannot donate your time, as many posts above correctly state. Next time you create some serious intellectual property you intend to give away, I seriously recommend you engage a tax lawyer to help you set up the "gift" of the property to a charity with a 501.c (3) exemption. The intent is to value your "gift" at the fair market value for tax deduction purposes. I would think the copyright on a book used by thousands of pre-med students would be worth thousands with the right appraiser. (I hear real estate appraisers are looking for work these days).

    Good luck.