Slashdot Mirror
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?"
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:
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.
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.
In Soviet Russia, ALL work gets paid (useless or not) ...not that your work is useless. If people are looking at it and using it and telling you to publish, you should probably do it if you want the money. If your writing was utter trash and you tried to publish it (or it actaully got published) then you wouldn't get paid for poor quality work.
The idea that you get a tax rebates for voluntarily working on something is interesting, but do taxpayers want to pay for this kind of work?
I would like to know what others think about this as I just graduated (today, in fact) form school with a CS degree. I was pondering doing some OSS work to get some experience in some form of team-ish software development. It would be nice if I could make money from the gov't for that.
I'd looked into this for another charity (Boy/Girl Scouts) I help out with a lot and found that I can't deduct value for my time. In order to take a tax deduction I have to donate things like: cash with a receipt, goods (fair market value), or mileage documented in a diary or expense report.
In short, your time is worth nothing to the IRS unless you first convert it into cash, thereby establishing it's fair market value. Then you donate the cash.
If you'd like some kudo's, there is always the Presidential Service Awards. They have a section for Computers and Technology. When you hit your bronze/silver/gold levels you can get it vetted and send your $6 to get a certificate. You'll probably also get letters from your local politicians who are plugged into the recognition process.
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.
You can't take a tax deduction for time you volunteer. The fact that you're doing so in a convoluted manner doesn't help.
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?"
How exactly do you propose writing off your time? As a charitable deduction? On Schedule C (Sole Propietorhip Income & Loss)? No matter...I don't think the IRS will let you deduct this either way.
Generally, self-provided services are not eligible for charitable deduction, ditto Schedule C. It makes sense if you think about it. When you take a deduction on Schedule C, someone else must pick up income. If you were the creator of the labor "sold", you created both the income and deduction. If the IRS were to allow you to take a labor deduction for your own services on Schedule C, it logically would figure that you'd also have to include the income that resulted from such deduction, either also on Schedule C, or on Form 1040, Line 7 (the W-2 line).
Then again, what do I know?
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.
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 :-)
what you can do for your country, ask what the IRS Code, Section 12, paragraph 14 can do for you.
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.
"It's the height of ridiculousness to say for those 9 lines you get hundreds of millions."
Money spent on computers, rented space, electricity, & time for writing free software is all after taxes. U better start charging money.
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.
Next time get an unrelated party to purchase the work from you and then donate the work. You can further donate the money you were paid to the purchaser's favorite charity. Two donations?
Woverly Harris Gooch, IV CTO American Fire and Bomb, LLC
I would think it would be like a home business, the IRS wants you to PROVE you used the space.
Si vis pacem, para bellum! For evil to succeed good men need only do nothing!
is a CPA or tax lawyer
Don't you think that the funding of all governmental activities is somehow less my responsibility since I pursue said $hobby?
Shit dude... the other day I did something for someone. Where's my 40 acres and a mule? Why the fuck should you pay less in taxes because you help write foss? If you are running a business, and reducing your tax load helps you grow your business, employ people, and donate to political parties....then it's an INVESTMENT into your company. But if you are doing FOSS with no intent to ever make money, your police, fire, water, and multiple wars aren't going to pay for themselves.
THL phish sticks
This is pretty simple if an actual non-profit is using your open-source product. Just set up a web page selling *discs* of your software. Then, donate the software, on discs, to your local charity.
This way, you are donating an actual good to an actual charity. Further, as long as you keep the price somewhat in line with competing proprietary products, you decide market value. And to sweeten the deal further, you can donate more discs at each major update (as long as you don't go too crazy).
Of course, you can still distribute the software for free over the internet - after all you aren't selling the software, you're selling the disc.
The big difference here is that you aren't donating your time - the time is all on you. However, you do have a disc which has a market value that you can donate.
--verbose, please?
Unfortunately, all those deductions you are using are illegal.
Why?
I'm not saying you're wrong, but other comments have indicated that the deductions he is listing are potentially legal. Do you have any evidence to counter his claims?
http://www.irs.gov/publications/p526/ar02.html#d0e1210
Contributions to Nonqualified Organizations
You cannot deduct contributions to organizations that are not qualified to receive tax-deductible contributions, including the following.
4. Communist organizations.
Ka-ching!
*dons suit of resistance to acid and flame*
Mmm...
This leads to the question:
"Why is tax law so complicated?"
Shouldn't taxation be a clear, easy to understand affair?
It looks from the comments that time doesn't count as a write-off. But I bet that if Microsoft donates a bunch of copies of Windows, or just gives them a number of licenses, to a non-profit, that counts as a charitable donation. Am I wrong?
If donating software to an organization counts as a donation, then one should be able to make a claim that by giving copyright to the FSF one is making a donation of goods, to be assessed at the market value of the code.
I suspect, though, that just releasing OSS by oneself would not count. But if one ran a non-profit that one donated code to, and which then did the releasing for one, then I think things would look better.
But this is pure speculation. Does anyone know?
Yes but too many people benefit from tax breaks of one kind or another for that to ever happen. It's really a general problem of bureaucracy and laws growing without bounds. Taxes are just of of the more convenient areas for politicians to shove things into to acquire votes, donations and so on. Isn't institutionalized and legal bribery fun?
Probably un-fixable short of a government reinstall and those are general a pain themselves.
and I think it may even be good advice. What is it worth to you though?
I was going to give it at no cost, but then I checked the license on your book and it has the NC clause in it.
So, Use BY-SA or BY instead and drop the NC and I will give the advice gratis. Or let me know if you are interested in paying for some advice.
I know this may sound snarky, but it is not meant in that way.
all the best,
drew
FreeMusicPush If you want to see more Free Music made, listen to Free
No. What you did does not count as any kind of charitable action. In fact, as most, if not all, open source projects are not charitable organizations, donations to projects, whether work, code, or money, do not count as tax write offs.
There is no "-1 offended" or "-1 you don't agree with me" mod options for a reason.
First, CPA do books, not taxes. If they do taxes as well, they are tax preparares and that is not the same thing as a cpa. Kind of like a plumber AND and air cond. guy. He can do both, but he's licensed and passed tests for each (in my state, anyway).
Just remember, you are going to get a lot of advice, and it falls on a bell curve rated "utter foolishness" to "Mind blowing". If you don't get a professional opinion, you could end up really hurting yourself.
At the very least, seek out a licensed professional and purchase an opinion. If you want, run by advice you're given here.
Necessity is the plea for every infringement of human freedom. It is the argument of tyrants; it is the creed of slaves.
You can't take a deduction for labor. Simple as that. I wish you could. I design websites and do computer training (mostly MS Office) for a number of organizations locally, adding up to some 300 hours a year. (I keep track of it.)
Not a single minute is tax deductable, but like others have said -- your mileage and expenses usually are.
Instead... look for ways to make money off your volunteer work. If you own a business, exchange your volunteer time for promotional mention in the organization's newsletter, website, or a banner next time they hold an event.
You won't get much business from it, but you might get a few new clients that need your help which may help "pay" for your volunteer work. What goes around comes around.
-David
Why?
Why is someone asking you this?
Perhaps because they don't want the information to be freely available. Perhaps they want to eventually hide and/or charge for the information down the road.
Sound like RIAA/MPAA, DRM to you?
You are being MICROattacked, from various angles, in a SOFT manner.
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.
Bill Stewart
New Fast-Compression-only CPR http://preview.tinyurl.com/dy575ks
Huh? The rich will pay plenty of taxes, and the ultra rich ultra plenty. Without loopholes, they'll start having to pay their fair share.
Don't piss off The Angry Economist
Many poor and middle class Americans have a negative savings rate, meaning they spend more than they take in. They would pay the 30% sales tax on 100%+ of their income. This includes people who are currently in the 0%, 10%, 15%, 25% and 28% brackets. These people are also known as poor, lower-middle class, and middle class tax payers. Notice that until someone earns more than $165k before they move into a tax bracket that is higher than the 30% sales tax rate as proposed by the "fair" tax.
Those with higher incomes tend to save and invest significantly more than those with lower incomes, this means that "Joe the Plumber" who has a 0% savings rate starts paying 30% tax on every dollar he brings in. Where as now he's paying significantly less than 30%. But on the other hand a banking CEO who made $100 Million but *only* spent $50 Million of it will have his tax drop from approximately $35 Million to $15 Million. Is that even remotely fair? Moving tax liability from the CEO to Joe?
You're correct in that he can't deduct his time as a donation, but if he were to donate the copyright in the book, that's an asset ("intellectual property"), which apparently has value.
To claim a deduction, he would have to donate the book's copyright to a registered charity, which agreed to receive it. To figure out how much he could claim as a deduction as a result, he'd have to get the value of the book's copyright appraised by someone with expertise to do so who is neither affiliated with himself nor with the charity it was being donated to.
Now how to do that in particular, I don't know. I don't know what sorts of registered charities would receive a donated copyright for a book. I also don't know who is qualified to appraise the value of unpublished book copyrights.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Clearly his "donation" of the book to premed students by giving it to them for free isn't a deductible contribution, but he could donate the book's copyright to a registered charity, which then went about distributing it for free.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
It seems like it'd be a lot easier to get this by the IRS if there were an established category of "software appraisers" who were considered qualified third parties who could give you a valuation the IRS would accept, much like real-estate appraisers do for real estate. I'm not aware of any though, and some googling doesn't turn anything up.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization.
Of course, this could change every year, so check back often.
I am not a crackpot.
For intellectual property, the IRS doesn't require that you compute a basis, since it's always zero. The deductibility of properly appraised donated patents is already well established, for example.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
People like you are hurting the economy. Why do you hate this country?
Wow I have a friend who does 3D stuff so I'll have to ask him, right now they are digitalizing cars for commercials. They scan the car with a laser scanner then he spends months smoothing the orange peel out of the paint, each near microscopic dimple in the paint becomes polygons occupying disk space and rendering time.
Apocalypse Cancelled, Sorry, No Ticket Refunds
If you could write off the value of your time, all you'd have to do is work 40 hours/week, volunteer 40 hours/week and not pay any taxes ever.
It makes sense in some sense. I was reading a book by Morgan Freeman and he made the following point: Democracy works until the poor realize that they can get shiny things by taxing "the rich" without taxing themselves. Then the country keeps devolving until a civil war breaks out. The trick is for all government programs to be sponsored by everyone accepting a equal (you have to define this) burden. This keeps the government small and thus all taxes lower.
I'm not saying that the fair tax is necessarily the best implementation, but I think that its concept is a step in the right direction.
I would also add ...
A tax lawyer has no idea how to fill out the IRS forms.
As a tax lawyer, they never showed us any forms etc. The training was all dealing with the IRS post-filing (or audit if you're getting hit for not filing).
Oh, I can cite code sections, and regulations, and IRS opinions, and write briefs, and deal with the auditors. But, I don't argue about how and what form you fill out. I argue what the value of line X should be, after you gave your answer and the IRS said "No".
The tax planning aspect of tax lawyering involves looking at the code & regulations, not the forms. You aren't creative about filling out the forms. You are creative about the moving money between categories. The accountant then rolls up those categories and fills out the forms.
If you go to a tax lawyer to file your taxes, they will likely hire an accountant to actually do it.
If you want someone to file your taxes, get an accountant.
If you want someone to defend you from the IRS, get a tax lawyer.
Also, the last line of the OP about making sure the CPA is "current" is important.
Tax knowledge has a short half-life. Politicians love to mess with the tax code. What you knew stone cold last year, may be 180* wrong this year. It is a lot of work keeping up with the latest changes.
Imagine if they changed the keywords for C every 2-3 years. And a random smattering of API functions every year. That is pretty much the rate of change in the tax code.
Does help people level in WoW count?
How about teaching noobs, lessons?....
If you work for an hour and earn $25, then give it to charity, you have no net increase in taxable income, since the additional income is offset by the additional deduction. Thus, you can work and give to charity the full value of your work, without losing any to income taxes.
If you volunteer an hour of labor directly to the charity, there is no tax paid either. Both situations - working in the market to support a charity and working directly in the charity are treated the same by the tax law.
I will stipulate that most readers of this will not understand it, but if you do, please consider graduate school in economics.
It makes sense in some sense. I was reading a book by Morgan Freeman and he made the following point: Democracy works until the poor realize that they can get shiny things by taxing "the rich" without taxing themselves.
Obviously, as that process happens, we'll see the gap between rich and poor shrink, as the poor grab more and more wealth from the rich. (Doesn't seem to be trending that way at ALL, though, does it?).
Then the country keeps devolving until a civil war breaks out.
In which the rich (perhaps that 1% of the population which currently owns more than 1/3rd of the total wealth) would take up arms against the 99% with the remainder? Actually, half of that remaining 2/3rds is still in the top 10% of the population, so maybe they'd join in?
Still not seeing it. Which of these groups is Morgan Freeman in, by the way?
The trick is for all government programs to be sponsored by everyone accepting a equal (you have to define this) burden. This keeps the government small and thus all taxes lower.
That approach would certainly stop the rich from taking to the streets with machetes. Of course, taxes pay for services, though, frequently services for people who aren't the ultra-rich -- but hey, if that's the price to pay to appease those bloodthirsty rich people.... BTW, we'd all like government to be more efficient, but this "plan" doesn't address that at all, so lower taxes would simply mean lost services.
I'm not saying that the fair tax is necessarily the best implementation, but I think that its concept is a step in the right direction.
Because it moves the tax burden onto sales taxes, it's a significant tax *increase* for anyone who is forced to spend all of their income, and taxes shrink for anyone who *invests* most of their money instead of spending it (the richer you are, generally the larger percentage you invest). So -- a step in the right direction for whom?
While the software is still fully proprietary and you hold full copyright with no public license grant, you could donate it to an organization like the FSF, which would then in turn GPL it. That way at the time of donation, you're donating software with higher fair-market value (as it isn't yet open source), and the charitable recipient is choosing to open-source it after receiving the donation in order to further their charitable mission.
This sort of thing is done semi-frequently with patents. You hold a patent that you could license on commercial terms, say for some new medical technique, and get its fair-market value appraised. But then instead of actually commercializing it, you donate it to a charity, and deduct that appraised fair-market value. The charity might then grant a blanket royalty-free license for anyone to use the patent, in order to promote their mission (e.g. if you donated a cancer-treatment patent to a cancer charity), but this doesn't affect the deductibility of your donation.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Good luck.
For tax purposes your labor is worth exactly zero and thus your work to produce the book is worth exactly zero and that's how much you can legally deduct. Yeah, the laws are rigged against you but that's how the game is played. Any actual out-of-pocket expenses - cash you spend or credit on your cards - are deductible, however. But you either have to be donating the cost to a charity or taking it as a business loss by declaring it a side business.
I'm presuming you want something legally defensible if the IRS audits you. If you don't care about whether it will withstand an audit and expect your chance of audit is low, you can try it but if you get caught, if your tax goes up there will be interest and if the difference is big enough, penalties. If it can look like a simple misreading of the tax laws then that's all you might have to worry about. If the IRS thinks it was intentional tax evasion then it gets very sticky. So we probably want a better solution if one is available.
So the short answer is no, you can't deduct your labor, but, if it can be determined the book has some sort of value then you might be able to donate that to a charity; some authors have donated their personal papers and gotten estimates of their value, and could donate that and deduct that, legitimately.
But that's not where the story ends, which is why tax accountants and lawyers make big bucks. I don't know if either of the following is legal, it was just right off the top of my head, but, then again, I'm not a lawyer nor a tax accountant. So you'd have to ask one and if these aren't fully legal as is, you might still be able to use the ideas from one or both of them or some variant. Or an attorney might know a legal way to do it.
Again, I don't know if either of these will withstand scrutiny either, but a good tax accountant or tax lawyer might be able to figure a scheme that does work.
If you learn how things work it isn't that hard to do them. I have a corporation which I'm not using right now, it only costs $25 a year to renew its charter, so I do, and every year I file state and federal returns showing income and expenses as zero. Since it doesn't get paid anything and basically spends no money except for what I have it do, it requires very little trouble. Since I don't need the deductions right now, I don't use all of the rules that are allowed, but if I do I have the tools to do so.
You could set up your own non-profit corporation (will
The lessons of history teach us - if they teach us anything - that nobody learns the lessons that history teaches us.