Generous Contribution

Today TaxMama hears from Bob in CT, who tells us. “I arranged a grant for $40,000 for a 501©(3) organization. Normally I require a finder’s fee of 20%. This time, I did not charge a fee to this organization, and essentially gave it back. Is the $8,000 I actually donated by not taking it, a deductible expense?”

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Dear Bob,

That’s an interesting question.

You gave up a substantial amount of money, and would like to get some tax benefit for it. I can understand that.

But you already have the tax benefit. Didn’t you realize that?

In fact you already have a better result than if you got the tax benefit.

OK, here goes. In order to deduct the $8,000 donation, what has to happen first?

First, you have to be paid the $8,000 and report it as part of your taxable income.

Then, you can pay it to the organization and get the deduction for it.

Net effect would be $8,000 – $8,000 = 0! Only it doesn’t quite work that simply.

If you had taken the charitable contribution deduction, it might have been limited by the itemized deduction
phase out limits, if your income were too high. It might have been reduced because of alternative minimum
taxes. Or you might not have needed to itemize, except for this deduction – and you would lose the value of your standard deduction.

So, you see, you’ve already come out better by simply reducing your gross income – which also reduced your AGI (adjusted gross income) and generated a whole host of AGI-related benefits.

OK, Bob, the short answer is – no, you can’t take the deduction.

And remember, you’ll find answers to lots of questions about donations and other tax information, free. Where? At TaxMama.com

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