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Ask Slashdot: Could Open Source be used as a Tax Writeoff?
kernel
submitted this interesting question:
"Say that I am a manager at a for-profit software
consulting firm. One of the projects I supervise
relies on a GPL'd software application. The
team has greatly improved the application, releasing the
changes back to the public. In some twisted
sense, this seems like charity work; is
there some way my company could justify the
expenses as a tax writeoff? If not, why not?"
Good question!
kernel continues...
"This seems like a great rationalization for companies otherwise unwilling to devote resources to Open Source software. If companies would tend to use and improve Open Source products more often if they had a way to recoup some of their investments (via tax savings), we would all be better off. My only thought is that pieces of free software could be loosely 'held' by a legitimate charitable organization and time spent working on those products could be written off as a donation. Any insight greatly appreciated."
Anyone else think this might be another way to leverage the Open Source development model into big business?
"This seems like a great rationalization for companies otherwise unwilling to devote resources to Open Source software. If companies would tend to use and improve Open Source products more often if they had a way to recoup some of their investments (via tax savings), we would all be better off. My only thought is that pieces of free software could be loosely 'held' by a legitimate charitable organization and time spent working on those products could be written off as a donation. Any insight greatly appreciated."
Anyone else think this might be another way to leverage the Open Source development model into big business?
It seems to me a non-profit organization should be formed for coders to donate their GPL'd code. Then it would not be any question of it being a deduction off of personal taxes. It would be donated time to a non profit organization. The organization would need to give reciepts but that would not be that hard to do. GPL'd code is for the betterment of mankind might well get the time and money spent on it written off your taxes
any cpa's out there who could find holes in that?
The Free Software Foundation fulfil is already a registered charity. Why not just donate to them?
What a horrible bad idea. As if publishing
Open Source software wasnt already an legal
minefield enough with just the copyright, patent
and intellectual property issues, now someone
wants to bring in more lawyers and accountants,
and the IRS. Oh joy!
Really, this is a bad idea and would more
than likely hurt the concept of OSS than it could
ever possibly help it. Not only in terms of public image (who wants "charity-ware"?), but it would
probabaly have the effect of turning many businesses away from it. Not only do you have all the already existant problems with a company publishing and distributing open source software, but then you add in legal and finanical problems, and increased the accounting load considerably. Does any of this sound like fun?
If a company wants to write software and release it as OSS, they should do it. Just because the sofware is OSS, does not make it any different
than propietary software in the sense of them selling it and making money.
How about this:
Suppose business A needs some improvements made to some Free Software which is maintained by a charity B. Instead of A doing the work themselves, they could instead donate the requisite funds to B. B could then hire the services of A to do the work (on a consultancy basis, in which accounting for time is standard practice).
This should keep the bean-counters happy. Dunno if it's legal though...
The best way to write off any amount given to free software is for the company to start a non-profit corporation that is recognized as such by the IRS. Then the company could donate money to the corporation. That money could be tax deductable.
More free software developers should set themselves up as Non-Profits, ask for donations and market the fact that those donations are tax deductable.
Hahahahaarrggh!
Yeah, that is some charity! Geeks giving geeks code! "Here now, poor starving indian geek, take this code so that your family will not perish" !
As far as I understand, since the recipients cannot earn anything from the code (at least directly, according to GNU copyleft), it is not worth anything! That the recipient finds valuable use in it does not matter, it would be like if I give trash and garbage to poor people that makes toys from it and sell to other poor people. They may have found value in it, but I gave trash and garbage!
And even if the code IS worth anything to the developers (Alert! Remember the GNU copyleft!) it might still not be valuable to the rest of us! "I gave the poor starving indian my collection of unusually shaped stones!"
Do not try to make money on Free Software! Keep your greedy hands off or the demons of Heck will darn you!
should i be income tax exempt if i write open-source code as a consultant for a corp?
You can get a tax write off on you donated time if the company you donate your time to can show how much it would have cost them to hire someone to do what you have/will do. So said charity provides paper-work similar to paystubs and you can use that with the IRS, just need all the reciets etc etc.
T. Theune
Many have viewed the code release as a good which is released to the public as a donation. This is probably not the best way to view it companies are not in buisness to make donations to the public.
A better view is that the code is released as a good will gesture. And that the money spent on developing the code is investment in good will.
As to which column on the balance sheet this goes under, how about advertising.
When I start up my free netscape I the names and logos of a whole bunch of companies with free code embedded in the browser.
Released code is widely distributed via ftp and other types of net sites. Any company releasing code can expect that code to show up all over the place. It is good advertising.
BAD DOG BAD DOG!!! Government OUT! Keep 'em out! Get away get lost beat it scram make like a tree and leave!!!!!! Government stay away from open source stay far away very far away in a galaxy far, far away!! *Froths at the mouth, hurling chairs and tables and monitors and microsoft CD's and AOL disks at random targets*
The costs of producing software are already deductible so long as they can reasonably be argued to have something to do with company operations.
No need to figure out charitable arrangements.
No need to track who's using the software.
Consider the following two situations:
Note that in the former case, the software development costs are highly likely to be considered an "expense" for tax purposes.
And somehow this discussion thread starts because people have the silly notion that because the GPLed software is used somewhere else that this is somehow a "charitable arrangement."
It's not. Expenses are tax deductible. Keep bureaucracy out of it.
Obviously we have too many "wage slaves" here who don't understand enough about business and taxation to be safe around attempts to set policy.
- Business expenses are deductible.
- The costs of producing software are a business expense.
- Producing software where no sales revenues are received merely cuts down on sales.
Are there exceptions? Surely there are.(So long as the business has a "reasonable expectation" of profit. If the business pays taxes, that's liable to be proof enough.)
Look at the financial statements for IBM, Microsoft, Netscape, and Oracle, if you don't believe me. These companies, as well as virtually all businesses that produce computer software, treat software production costs as business expenses for the purposes of financial reporting as well as for tax purposes.
Amazingly, none of them do so via any role involving "charitable foundations."
Note that the wages that you wish you were getting paid for your work are not an expense for tax purposes.
Unless, of course, the business actually does pay you a salary, in which case you have to pay taxes on that income.
Note that this means that if the FSF pays RMS, he has to pay taxes on that income. Which means that while you may have put off paying taxes by giving the FSF money, the IRS still gets "their" money at the end of the day.
In short, trying to play tax games (that people quite evidently don't understand ) in order to try to improve funding of free software is counterproductive. I suggest the alternative of just plain giving folks money instead.
Back in my days doing tax work (working for one of those "evil tax accountants" that search for the fabled loopholes), many clients would jump into simply stupid investments that would lose them money just to cut their tax bill. At the end of the day, they'd have lost money. Thousands of dollars in the toilet. They apparently felt good about this because they denied the government some tax revenue. Let's not go there, please?
Inform your company tax people to check this out. If your a large company they are in house, if you are a small company find your tax lawyer/accounant.
You will have to expiciatly keep track of how much time you spend on OSS, and then release it all to the net with a little legal disclaimer. Your lawyer will be picky about exactly how it is done (your company doens't want to take responsibility). Fortunatly you can donate to the Free Software Foundataion, the FreeBSD project, and similear orginizations for most software.
Do NOT ask /., we are not lawyers. We all will think it is a great idea, but can't say if it will work. Also rules vary country be country, and /. is an international forum.
Can't you just give something away? Does it hurt you that much to not be raking in money off of people? You could do with the good karma.
AFAIK, all business expenses are already tax-deductable. Businesses only pay taxes on their profits. So as long as said Big Company paid for the employees and physical structure (office space, electricity, network access, etc.), they won't be taxed on the expense.
First, if the code was developed by a commercial venture, then the expenses have already been written off. There is no "extra" writeoff justified because the code is given away:
Scenario 1: cost of development:$100K, revenue when given away: $0 - tax writeoff (against other revenue): $100K.
Scenario 2: cost of development:$100K, revenue realized: $200K - $100K profit (not $200K) is subject to tax on profits.
Same writeoff, though it is applied against related revenues instead of unrelated ones.
The complication here stems from the fact that a commercial venture is supposed to have a reasonable expectation of profit. IOW, you can't just give away code for a tax writeoff unless you (eventually) have some revenue against which the writeoff can be applied.
This doesn't apply very much to corporations, but is relevant to individuals who might wish to contribute GPL code that they developed, and write off the value of their development time against other income. Since giving stuff away, by itself, is not a commercial venture, I doubt the IRS or Revenue Canada would allow the write-off (disclaimer: I am not a tax professional so consult your own tax advisor).
Ideally, then, GPL software donated by individuals should give rise to a tax-writeoff against other income (well, no: ideally, there would be no tax and the matter moot, that's just my libertarian bias showing).
How can this be achieved? The easiest way would be to make a money donation to an organization like the FSF, which could then pay one back for the development, at cost, of the software you donate. The money donation is a charitable tax writeoff and the revenue from the sale is offset by the development cost of the code, deemed to be a wash if the software is 'sold' at fair market value.
Of course, what is the 'cost' of developing a piece of code? Industry pay-rates for development of similar code can be averaged and multiplied by the time spent developing it. Keeping time-logs would be important here.
In Liberty, Rene
^8-)) Hehe, donating money to an org just to get the money back. I *really* doubt this is legal.
Regards Tobias
I do some charity work with the Jaycee's and other organizations.
In some cases you can get a tax deduction for donating money, or mileage on your automobile.
But I'm not aware of any charitable donation tax write-off for your time.
There is also already a pretty strong impression that OpenSource "Free" software is not really free, but paid for by tax dollars. Do you really want to continue this negative impression?
From my experience with 501(c)3 orgs, it is possible to write off time spent working for a (c)3. However, it is a bitch and a half and will usually raise a flag with the IRS. One or two people can usually get away with it a little bit with the proper paperwork (i.e. lots of docs) but most volunteer work is not deductible. There is a whole schedule of rules pertaining to it.
Friggin' IRS....
Companies who help OSS products by hiring OSS developers or assigning current employees to aid in an OSS project aren't really doing so out of charity. For instance, Corel is not supporting WINE because they love WINE, they are supporting it because they intend to use it in their own products. Likewise, Red Hat doesn't aid in kernel & software development for the fun of it; they do it because their business directly depends on the quality of these things. So I question whether it's a valid argument to call such activities charity rather than business expenses.
As for the private programmer, that may be a different case.
--
Aaron Gaudio
"The fool finds ignorance all around him.
"Every man is a mob, a chain gang of idiots." - Jonathan Nolan, Memento Mori
It always amuses me how much money people are willing to spend to avoid paying tax. It's like a phobia or something.
fish and pipes
As I understand it there are 2 problems with this idea:
1) To be used as a "charitable donation" normally requires that the recipient be a federally registered charity
2) All costs of software development are normally costs of doing business and as such are deductible ( at least to a business). However, if one were to approach this on your personal income tax it would differ a bit..
Maurice W. Hilarius Voice: (778) 347-9907
Deducting the salary expense would not be an issue, but determining a "fair value" of the product would not be as easy. And as my old tax profs used to say, "the IRS is always looking out for you."
Existing tax code is so screwed up because congress is constantly plugging loopholes. If you find one here, you can bet that the IRS will get congress to plug it pretty quickly.
DISCLAIMER: I hate tax. I never did good in tax class. I am not a cpa. I passed the cpa exam, but the tax part made no sense to me.
Uh. The FSF is exactly that. Though, they might take some restructuring for this purpose. . .
** Martin
A lot of people seem to be hinting at the opening of an organization that would be a IRS certified charity who "holds" the rights to ALL GPL'ed Software!!!!
:), "OWNS" it... in the future, they may just change their mind. Some sadistic bastard could sneak into it and make mucho money by more or less violating every single programmer who ever wrote free code...
;)
I for one will not write any software for free if some company/org controlled by someone (may it be ESR or God, although for some they are one and the same
The prospect of writing code for the PUBLIC is very alluring to INDIVIDUALS. Some might argue these INDIVIDUALS are the smarter ones in the industry, and are VITAL for the open source movement. Such a move, IMHO, will discourage individuals and encourage CORPORATIONS or small companies for tax reasons. That might well mean BAD code and hence, the DOWNFALL OF THE OSS movement!!
I don't think this is a good idea at all. If corporations don't feel like doing a service to the general public, they can sell their products. Wanting a reward for charity is the most bogus ideal ever.
(Everything above is wrong. What you think is right. Ok? Now go suck your thumb and lay in your mother's lap.
As long as you can prove that the time spent on an open source project is a real business expense then it can be written off. As for personal time donated to OSS I doubt it can be written off. That is unless you can also write off time donated to a soup kitchen or other charity. If there is no income from an activity then there is no write off.
Now if someone can figure out a way to get a tax credit (act of congress) for OSS development then great...
It is in all of our best interest to make it in companies' best interest to create more OSS. Unless, of course, you are a major proprietary software vendor with which these projects would compete.
Considering my current personal tax bite approaching 60% I need all the help I can get. It's not my fault the US tax system is screwed up this way! The US tax system favors nonsense input to every financial decision.
What difference does this make if you don't contribute good software anyway?
Okay, so let's say someone writes a package that makes email-spamming easier, and they distribute it as open source. Should that be tax-deductible? Personally, as a taxpayer, I don't think I'd want to see the government supporting spam, which is what the tax write-off would amount to in that case.
But do you want the government put in the position of deciding on a case-by-case basis which open-source packages deserve tax writeoffs? That doesn't seem like a good idea either, considering, for instance the influence of big business on most governments, and the incompetence of most bureaucracies to make technology-related decisions.
-- Some things are to be believed, though not susceptible to rational proof.
Currently, if you donate time, say by picking up litter on the expressway as part of a charitable cause, you are not allowed to take any write-off for your time. It's a pity, but that is current tax code.
.. and possibly win a grant.
I would speculate (and I'm not a lawyer) that trying to take a deduction for working on open source software is in the same bucket. And with
Eric Raymond's paper explaining how the reward is intellectual, the IRS could successfully argue that your "donation" is definately not charitable since it involves ego gratification. If you persist, they may go even further and want to assess the economic value of the ego gratification received and tax you on that... *evil grin*
Probably the only thing that you might be
able to do:
a) Create a charatable organization to create open-source software (GPL style, cuz you can argue that the Artistic license is _not_ charitable since it gives the creator "artistic control" in exchange for others's use)
b) You and _lots_ your friends donate to it (otherwise it will be a private foundation, with no tax advantages).
c) The organization could buy equipment and items necessary for the creation of open source software.
d) The organization can _allow_ you to use its
equipment for its charitable purpose.
e) The catch is: You must provide a non-biased mechanism so that your donation dosn't necessarly benifit you (with the use of the computer). Thus, an independent board of directors would be required, and a "grant" mechniism would be put in place, where you (and anyone else who wanted to take advantage of your donated money) can submit
Overall, I'd leave trying to beat the IRS out of it. If you do it wrong, it could cost you _way_ more in heart ache and money than you could possibly imagine!