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

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?"

Comments

MS model?

[wurp]

If you charge for something, and have purchases, then isn't any copy of that thing that you give away a business loss?

How is this different than MS writing Vista, which they sell, then taking a tax write-off for the full value of Vista when they give 100,000 copies to schools?

You're not writing off your time; you're writing off the value of the goods you gave away.

I am not a lawyer or an accountant. I'm just asking the question :-)

It's A Hobby

[Nom du Keyboard]

When you aren't making money from an endeavor, especially if you can't point out how it may lead to making money in the future, it's not a job to the I.R.S., but a hobby. And you can't write off expenses of a hobby. The earlier poster who says his stellar C.P.A. who found lots of write-offs has likely yet to survive an I.R.S. audit over them. You may not be so lucky.

You will receive lots of suggestions here. Mine is, and I've worked as a consultant and had write-offs, that you need to show how all these efforts are leading towards profits in the future. It's not a crime to lose money in your business, however, after a certain point (IIRC 3 years, but talk to a professional about this) the I.R.S. will no longer consider your efforts a business.

One suggestion: Chalk all this up to generating resume cred for future jobs that do pay.

double dipping

[jdh3.1415]

You can't write off volunteer time. That would be double dipping. The good news is you don't have to pay taxes on the money you didn't earn while working on your book.

Imagine your time is worth $50.00 / hr. You could donate 100 hours of time by working for 100 hours for $5000. Then, you could donate the money back to the charity and deduct the $5000. Or, you could work for free for 100 hours and forgo the deduction. Both scenarios would put you in the same place tax wise.

On the otherhand, if you worked for free and took a deduction, you would essentially be taking the deduction twice. The IRS doesn't take kindly to this.

Re:I write off thousands every year to OSS

[alphad0g]

You can write off un-reimbursed business expenses and charitable contributions. Working on OSS projects does not qualify as either one unless your company is paying you to do this from home - then you can write off your router/internet/etc. as long as they are for business only. Driving to LUG - how does that fit? LUG is not a recognized charity, nor is 99.999% of OSS. Taxes on your home should be deducted as part of one of your normal itemized deductions; if you are taking another part of them for this OSS work, you are double dipping. Ask your CPA if he will pay the fines when you get audited? You may want to be ready with an alibi when IRS comes knocking - tell them you have a wireless router that has no encryption and someone was parked outside, posting to slashdot. Also, I would find a reputable CPA, as this one is giving you some bogus info.

Tax code is *code*

[billstewart]

My wife, a computer scientist, did tax preparation during the 80s. The tax code is code - is was written to do things, and it's buggy and badly documented, but it's code. At the time she started, most of the tax code generally made some sense - it was full of special interest giveaways, obfuscation, ill-advised attempts at social policy, etc., but she had the impression that the people writing it generally knew what they were trying to accomplish with most sections - but the Reagan "tax cut" years added 30-50% more tax code, and she got the impression from watching the changes that the Congress was losing track of what it was trying to accomplish. There'd be things that got put in one year and patched the next (e.g. they were trying to do a favor for one Indian-run casino in South Dakota, the patch corrected the unintended favor that they'd also done for a casino in New Jersey, etc.)

The basics about deductability of things you've performed for charity probably haven't changed much since I last looked at it 20 years ago. If they paid you $X for your labor and you donated $X to them, you'd break even. That's not different if you're charging them $0. On the other hand, if you're donating materials in kind, you might be able to donate the costs of those materials - your CPA can tell you, and some kinds of deductions like costs of home offices are so often abused that you need to be very careful if you want to even try.

However, if you own a profit-making business, it's easier to have things you're doing be done by the business and therefore be expenses of the business. That's still not going to let you get paid for your labor, but costs like your computers, power, etc. are easier to put there, reducing the profit your business makes and therefore reducing your business's taxes. But if your business loses money more than X years out of Y, the IRS says it's not a business, it's a hobby, and you can't deduct the costs.