Donating to a 403c - PeachParts Mercedes-Benz Forum

Kuan · #1 12-30-2003, 04:16 PM

Suppose I want to donate something to a non-profit but they can only afford $400.

Say my rate is normally $1,000. I charge the 403c $1,000. It's business as usual for me. They get to write off the $1,000 as an expense. Then I cut them a check for $600 which is tax deductible for me. At the end I get back say $200 from that $600. I'm left with $600 since that $400 was an expense and the balance of $200 is a refund or tax I wouldn't have to pay anyway. So the 403c actually pays $400, and I'm really only $400 out of pocket for expenses and actually up $200 in the end. Uncle Sam picks up the $200 and gives it to me.

Correct?

rickg · #2 12-30-2003, 04:19 PM

Uhh....yeh.....sure......

Kuan · #3 12-30-2003, 04:22 PM

Have I had too much eggnog?

Rick Miley · #4 12-30-2003, 05:30 PM

OK, let's see if we can straighten this out. You want to do a job that would cost you $400 in materials, and you would normally charge $1000 to the client, yielding a $600 profit.

What you're proposing is that they pay you the $1000, and you in turn make a $600 donation, so they've paid a net $400. You've broken even at this point.

Then you claim the $600 donation on your income taxes, and Uncle Sam reduces your tax bill by $200 (assuming 33% tax rate). This makes you $200 to the good.

Here are some things to consider: The $1000 paid to you and the $400 in expenses are "business" money. But the $600 donation is "personal" money. I'm not sure how much you can mix the two - that's why I hire an accountant.

Then there's the question of whether you'll receive maximum benefit from the donation. You have to itemize, and you have to be above the standard deduction amount. But your donations also have to be below a certain amount, or you'll get hit with alternative minimum tax. That happened to me in 1996 and I still don't understand it.

djugurba · #5 12-31-2003, 02:33 AM

Do the work, and allow them to pay you whatever they can afford. On your invoice, indicate the expenses as normal, then the payment in the amount actually given to you. You might want to then indicate the balance as a donation.
THEN, get them to write you a donation slip, which you will provide to your tax pro (or send in if you do yourself) along with a copy of the invoice. The donation slip should indicate the value of the services or parts or whatever you've done. Often, 501.c.3 orgs. will have you indicate the value yourself, and as long as it is not over a certain threshold amount the IRS will not care.
I wouldn't monkey around with all those other steps.

BTW, donations are tax deductible, but it's not the same as getting a check from Uncle Sam.... not nearly as good. and Rick Miley's point about mixing biz and personal stuff is a point to consider unless you are a sole proprietor and in effect ARE the business.

Good luck with it!
K

djugurba · #6 12-31-2003, 02:37 AM

I must have had some of your eggnog, because I just re-read the first post and it made better sense this time. I think you would do best to think of the job and the donation as two separate and distinct events. No quid-pro-quo.
Then, as long as you don't get into the biz/personal issue, you'll be in good shape.

nog nog

drbrandini · #7 12-31-2003, 08:39 AM

You should be ok as long as you keep the two seperate. You should be able to receive a break for making the donation in your company's name but only to a certain extent. Again if you have enough of these then you can Itemize and you may get quite a bit more back. If you use a standard deduction you won't get any of it back....just an arbitrary amount. I think I got that right. Its been a while.