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May I deduct for employees’ work on charity project?

Your Legal Questions Answered

May I deduct for employees’ work on charity project?

If I have my employees work on a project for a nonprofit charity, can I deduct the cost of their wages?

Probably, but not as a charitable contribution.  The general rule is that a gift of services is not deductible as a charitable contribution. But if the work is done for advertising, public relations or other purposes of your business, you can probably deduct the cost of the wages as an ordinary and necessary business expense.  Most businesses probably do so in a situation like this without making any effort to claim a charitable contribution deduction.

In fact, if your business is a partnership, proprietorship or other pass-through entity not taxed as a C corporation, you may be better off treating it as a business expense.  Under the new tax law, individuals, to whom the business income and expense are passed through, may be unable to use a charitable contribution deduction because their new standard deduction is larger than their itemized deductions. (See Ready Reference Page:  “Tax Bill Not Good for Nonprofits, But Not As Bad As It Might Have Been”)

Fundraisers will want to suggest that pass-through business owners may want to take advertising in the annual fundraising dinner program rather than contribute for a sponsorship, simply because the advertising is deductible as a business expense while the contribution deduction could be effectively lost.  It is a principle that will be much more important now than before.

Tuesday, March 13, 2018

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