Tax Information With A Mother's Touch
Published by Eva Rosenberg, MBA, EA
Volume 6, Issue 274 September 3, 2004
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Tax Information With A Mother's Touch Published by Eva Rosenberg, MBA, EA Volume 6, Issue 274 September 3, 2004 |
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 » From: Somerville, MA Dear TaxMama: I'm an independent software developer and I have a new client that is a 501(c)3 non-profit. They asked me to reduce my rate by $10/hr because of budget concerns. I asked if I could instead donate $10/hr hour back to them as a tax deductible donation and they thought that would be fine. They told me to note the donation amount on my invoice and that would be enough for a tax receipt. Do you see any problems with the arrangement or issues I may have come tax time? Thanks, Ron  Hi Ron, That's kind and generous and wonderful! But, you betcha! I DO see problems with the arrangement. Have them pay you your full invoice. Then write a check to them for your donation. And since your donation is going to be for more than $250, they MUST give you a receipt or confirmation, on their stationery or letterhead to confirm the donation. Otherwise, you will pick up your full fee as income, but you won't have a donation. That's all resolved, right? Nope. There's more. Another problem I see is that you will be picking up your full fee as income. But you will be deducting the donation as an itemized deduction - as a charitable contribution. So you'll be paying self-employment taxes (15.3%) on the amount of the donation. Sure, you could try to deduct the donation as a business expense. But that is a grey area - and you might lose it on audit. There are no guarantees. The easiest way, all around, is to do what they asked in the first place - simply reduce your fee. Sorry ... but it's more complicated than it needs to be, when you want to be helpful. Best wishes, Eva Rosenberg Your TaxMama  |
 
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| Library of Congress - ISSN 1532-0790 Copyright © 2000-2007 - Eva Rosenberg |
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