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Tax Write-Offs For Free (As In Speech) Work?
Posted by
kdawson
on Sat Oct 18, 2008 02:42 PM
from the time-is-money-isn't-it dept.
from the time-is-money-isn't-it dept.
deuist writes "Several years ago I wrote a book called The Not So Short Introduction to Getting Into Medical School (PDF) and released it online under a Creative Commons license. I have been asked several times to publish the text so that I can make money off of it. The book has become quite famous among pre-med students and is now available from the Princeton Review as a free CD that is given to pre-medical interest groups. My question to the Slashdot community involves claiming this work as volunteering for tax purposes. Have any of you had any success with releasing free software and then writing off your time when April 15 rolls around?"
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I write off thousands every year to OSS (Score:5, Informative)
I've written off thousands of dollars every year to OSS, and continue to do so. I have a stellar CPA who was able to find all of the legal places where I can write off money. Here are some of them:
My first suggestion would be to interview and find a top-notch CPA, and book an appointment with him to pour over your finances to see where things can be deducted. They can also retroactively go back years and reclaim funds you did not claim the first time around, if you miss critical deductions.
Re:I write off thousands every year to OSS (Score:5, Insightful)
Parent
Re:I write off thousands every year to OSS (Score:5, Informative)
Expenses that you pay out of pocket as part of volunteer activities to a not profit organization are generally deductible. The actual time is not.
www.irs.gov/pub/irs-pdf/p535.pdf
http://www.irs.gov/publications/p526/ar02.html#d0e867 [irs.gov]
Parent
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Out of pocket expenses for paid work for any organization are tax deductible - any contractor knows that.
Although I am certainly no tax attorney, I don't see why giving away the work should make a difference.
Re:I write off thousands every year to OSS (Score:5, Informative)
Lemme see. 501(c)3's: The Free Software Foundation, Software in the Public Interest, the Gnome Foundation, the Open Source Initiative, the Perl Foundation, the Python Foundation, the Apache Software Foundation, the Public Software Fund. I'm sure I've missed some.
You can't swing an open source cat without hitting a 501(c)3.
Parent
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The IRS doesn't run on "hope".
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The problem is, you can only deduct the fair market value of your software. Which is likely minimal, especially if it is released under an open source license. The use of something like the GPL as your license substantially devalues holding the actual copyright. How much would you be willing to pay for the copyright assignment on a no-name piece of software that only a few people, or perhaps no one but the charitable organization itself, is using? When you already have full rights to use and distribute
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Unless your CPA is also certified as a tax lawyer as well, as mine is :) He knows the tax code inside and out, and lectures about it to other accountants, lawyer and tax lawyers every year. He is THE TOP in his game in this side of the country.
Re:I write off thousands every year to OSS (Score:5, Funny)
Parent
Tax code is *code* (Score:4, Interesting)
My wife, a computer scientist, did tax preparation during the 80s. The tax code is code - is was written to do things, and it's buggy and badly documented, but it's code. At the time she started, most of the tax code generally made some sense - it was full of special interest giveaways, obfuscation, ill-advised attempts at social policy, etc., but she had the impression that the people writing it generally knew what they were trying to accomplish with most sections - but the Reagan "tax cut" years added 30-50% more tax code, and she got the impression from watching the changes that the Congress was losing track of what it was trying to accomplish. There'd be things that got put in one year and patched the next (e.g. they were trying to do a favor for one Indian-run casino in South Dakota, the patch corrected the unintended favor that they'd also done for a casino in New Jersey, etc.)
The basics about deductability of things you've performed for charity probably haven't changed much since I last looked at it 20 years ago. If they paid you $X for your labor and you donated $X to them, you'd break even. That's not different if you're charging them $0. On the other hand, if you're donating materials in kind, you might be able to donate the costs of those materials - your CPA can tell you, and some kinds of deductions like costs of home offices are so often abused that you need to be very careful if you want to even try.
However, if you own a profit-making business, it's easier to have things you're doing be done by the business and therefore be expenses of the business. That's still not going to let you get paid for your labor, but costs like your computers, power, etc. are easier to put there, reducing the profit your business makes and therefore reducing your business's taxes. But if your business loses money more than X years out of Y, the IRS says it's not a business, it's a hobby, and you can't deduct the costs.
Parent
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I am somewhat aghast that this incredibly ignorant comment was modded insightful. Many, many CPA's (full disclosure, including myself) specialize in tax strategy, planning and compliance. The tax advice you can receive from a CPA is often as good as, if not better than advice you could receive from an attorney.
For today's anecdotal fact, I provide tax expertise to several law firms and their clients. The fact that these firms outsource their work should give you an indication of the relative quality of o
Re:I write off thousands every year to OSS (Score:5, Informative)
Yes, CPAs are accountants. But just to be clear, being an accountant doesn't necessarily mean you're a CPA. In fact, less than 20% of accountants are even CPAs.
No, it's the tax lawyers that shouldn't be used for tax preparation. "In most U.S. states, only CPAs who are licensed are able to provide to the public attestation (including auditing) opinions on financial statements." http://en.wikipedia.org/wiki/Certified_public_accountant [wikipedia.org]
Tax lawyers are too highly specialized. Now don't get me wrong, tax lawyers will be able to give you very a precise answer about something that falls within their narrow niche of experience, and they'll be able to give you an answer as long as you already know which right questions to ask, but they won't necessarily have the general legal knowledge of a CPA. And yes, CPAs have general legal knowledge, if you just take a look at their exam sample books, I think you'll see that the legal knowledge and the legal minutiae represents the bulk of their exam, and that the accounting part is really the easiest part they have to know.
So not only using a Tax Lawyer would probably be overkill, but he would also probably miss important deductions because he'd miss the bigger picture that comes with the experience of preparing taxes and signing his names to them day-in and day-out (that being said, the specialization trap can also apply to CPAs as well, so for instance a CPA who passed his CPA state bar exam twenty years ago and who isn't used to doing taxes at his day job -- will most likely not be a very good choice either).
Parent
Re:I write off thousands every year to OSS (Score:5, Informative)
...the fact that you are using a CPA for tax prep, and suggesting that others do so as well, scares me. CPAs are not for tax preparation. You have a question about the tax code, you ask a tax lawyer, not a CPA. CPAs are accountants.
Wow! Where do I start, except to say that I'm an Enrolled Agent, meaning that I'm authorized ("licensed" as it were) by the IRS to represent taxpayers before all levels of the Internal Revenue Service." In other words, I'm a tax professional with a certification that goes back well over 100 years. Attorneys have had that right for less time and CPAs for a lot less than that. I'm also the tax manager in a small but nationally recognized CPA firm. Most CPAs (including all of the final 4) do lots and lots of tax work, much of it referred by tax attorneys who, for the most part, handle tax controversy matters and answer questions a lot harder than KDawson's. And they do so somewhere north of $300-$400 an hour if they're even half-good. I'll leave it to others to respond to the original poster's query, but will confirm that, no, you cannot write off your time. The tax rules can be complicated (and just because your accountant/lawyer/taxguy says it's so doesn't mean it will be upheld on audit unless the facts support it). Find a good CPA who knows your industry, or better yet, an Enrolled Agent. Or get a referral from a tax attorney.
Parent
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My first suggestion would be to interview and find a top-notch CPA
Would you be so kind as to post any leads in the SJ, CA area or email me offline?
Re:I write off thousands every year to OSS (Score:5, Interesting)
Parent
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Unfortunately, all those deductions you are using are illegal.
Why?
I'm not saying you're wrong, but other comments have indicated that the deductions he is listing are potentially legal. Do you have any evidence to counter his claims?
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Yes but too many people benefit from tax breaks of one kind or another for that to ever happen. It's really a general problem of bureaucracy and laws growing without bounds. Taxes are just of of the more convenient areas for politicians to shove things into to acquire votes, donations and so on. Isn't institutionalized and legal bribery fun?
Probably un-fixable short of a government reinstall and those are general a pain themselves.
NO (Score:5, Informative)
to get a tax write off, you need to donate money (or materials, which cost money at some point). Your time has no value for tax purposes.
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When you write anything, and retain the copyright, that is an asset. You can donate that asset to a charity and claim a deduction of the fair-market value. How much is a document, or your software worth? I dunno, but there are companies you can pay to give you an opinion. They charge a percentage of the value.
So, yeah, all that software your wrote for the FSF after executing their copyright assignment form? Deducation!
Let me be the first to say (Score:2, Funny)
In Soviet Russia, ALL work gets paid (useless or not) ...not that your work is useless. If people are looking at it and using it and telling you to publish, you should probably do it if you want the money. If your writing was utter trash and you tried to publish it (or it actaully got published) then you wouldn't get paid for poor quality work.
The idea that you get a tax rebates for voluntarily working on something is interesting, but do taxpayers want to pay for this kind of work?
I would like to know what
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Lol! A "tax write off" is not a rebate. It has nothing to do with the government paying people. It's something that lets you pay less tax than you normally would. Unless you really think you have a right to other people's income. In which case your lame Soviet Russia joke would actually be kinda funny, though not in the way you intended.
For example, you can get a tax write off for donating money to charity. A very simple, probably numerically incorrect, example: if you made $50k last year and donat
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You don't actually get a tax rebate for volunteer work. You can write off any expenses directly related to the volunteer activities (travel, materials, and meals under strict circumstances).
Submitting code to yet another half-assed IM client on SourceForge does not magically entitle you to not pay income tax for your day job.
That said, there's a whole mess of funky stuff going on with the US tax laws. Some folks argue that there is no law in existence forcing US citizens to pay income tax! I take it with
What is your time worth? (Score:3, Insightful)
I'd looked into this for another charity (Boy/Girl Scouts) I help out with a lot and found that I can't deduct value for my time. In order to take a tax deduction I have to donate things like: cash with a receipt, goods (fair market value), or mileage documented in a diary or expense report.
In short, your time is worth nothing to the IRS unless you first convert it into cash, thereby establishing it's fair market value. Then you donate the cash.
If you'd like some kudo's, there is always the Presidential Service Awards [presidenti...awards.gov]. They have a section for Computers and Technology. When you hit your bronze/silver/gold levels you can get it vetted and send your $6 to get a certificate. You'll probably also get letters from your local politicians who are plugged into the recognition process.
Ask the IRS... (Score:5, Informative)
volunteering is not a tax writeoff (Score:2)
Deductibility of labor rendered (Score:2, Interesting)
My question to the Slashdot community involves claiming this work as volunteering for tax purposes. Have any of you had any success with releasing free software and then writing off your time when April 15 rolls around?"
How exactly do you propose writing off your time? As a charitable deduction? On Schedule C (Sole Propietorhip Income & Loss)? No matter...I don't think the IRS will let you deduct this either way.
Generally, self-provided services are not eligible for charitable deduction, ditto Schedule C. It makes sense if you think about it. When you take a deduction on Schedule C, someone else must pick up income. If you were the creator of the labor "sold", you created both the income and deduction. If the
No go.... (Score:5, Informative)
From my understanding, volunteer work is not tax deductible. Tangible assets and money given (like miles driven, money and items donated) may be deductible in certain situations.
In other words - you need receipts for things you used in the service of making your work for non-profits. And, technically speaking, you're going to need a 503(c) charity status as well.
If you want to run a 503(c) and give it away, you can certainly do that. But the only money you would be able to deduct is the money you would spend on the creation and operation of the charity organization.
Disclaimer: You milage may vary, offer not valid in the state of California, I'm not a lawyer and you're likely to end up in Gitmo following my advice, married with 16 children, and bald. Some people experience adverse reactions to this advice, such as lucid dreaming, extended erections, overgrown toe and nose hair, and quite possibly death by shotgun in the night. Drink responsibly.
MS model? (Score:5, Interesting)
If you charge for something, and have purchases, then isn't any copy of that thing that you give away a business loss?
How is this different than MS writing Vista, which they sell, then taking a tax write-off for the full value of Vista when they give 100,000 copies to schools?
You're not writing off your time; you're writing off the value of the goods you gave away.
I am not a lawyer or an accountant. I'm just asking the question :-)
Re: (Score:3, Interesting)
Assume that the good doctor had originally copyrighted the material and sold a bunch of the books/CD's, etc. at a reasonable price (let's say $20-$25 each). Now, however, the doctor has seen the light of FOSS and starts giving the books away to aspiring med school students. I would argue that this puts the doctor in the
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Well, in the case of the company that paid you and then took a write-off, there is a loss on their part. They pay you your full salary, but the write-off only pays them back 30% (or whatever their highest bracket tax rate is) of the money they paid you.
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Yep, chaotoroboto pointed that out.
I'm sure you're right, and I was crazy. I do wonder, however, about MS donating to schools. Every time that happens we hear someone going off here about how it's just a huge tax write-off for them. From what you're saying, there is no money made, but money lost on such deals.
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I did think about it. Do software publishers pay tax? Do you have evidence one way or another?
'cause I couldn't find any.
Ask not... (Score:4, Funny)
It's A Hobby (Score:5, Interesting)
You will receive lots of suggestions here. Mine is, and I've worked as a consultant and had write-offs, that you need to show how all these efforts are leading towards profits in the future. It's not a crime to lose money in your business, however, after a certain point (IIRC 3 years, but talk to a professional about this) the I.R.S. will no longer consider your efforts a business.
One suggestion: Chalk all this up to generating resume cred for future jobs that do pay.
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I'm fairly sure that an effort that loses money for more than three years can still be considered a business rather than a hobby (else, some airlines would be hobbies!). However, I think the burden of proving it's not a hobby shifts strongly to the taxpayer after (IIRC) three years of no profits. Obviously airlines meet this test trivially (who, in their right min
fuggetaboudit (Score:2)
Money spent on computers, rented space, electricity, & time for writing free software is all after taxes. U better start charging money.
double dipping (Score:5, Interesting)
You can't write off volunteer time. That would be double dipping. The good news is you don't have to pay taxes on the money you didn't earn while working on your book.
Imagine your time is worth $50.00 / hr. You could donate 100 hours of time by working for 100 hours for $5000. Then, you could donate the money back to the charity and deduct the $5000. Or, you could work for free for 100 hours and forgo the deduction. Both scenarios would put you in the same place tax wise.
On the otherhand, if you worked for free and took a deduction, you would essentially be taking the deduction twice. The IRS doesn't take kindly to this.
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So work for them as a consultant, give 'em a bill, and then give 'em "back" the $$ they pay you as a donation
How good was your record keeping? (Score:2)
The right place to ask (Score:2, Informative)
is a CPA or tax lawyer
Dear Slashdot, (Score:2)
Don't you think that the funding of all governmental activities is somehow less my responsibility since I pursue said $hobby?
Shit dude... the other day I did something for someone. Where's my 40 acres and a mule? Why the fuck should you pay less in taxes because you help write foss? If you are running a business, and re
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your police, fire, water, and multiple wars aren't going to pay for themselves.
But they could save themselves money using donated FOSS.
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This doesn't change the fact that it's tacky to expect everyone else to subsidize your hobby thru offsetting public costs.
Code donation (Score:2)
It looks from the comments that time doesn't count as a write-off. But I bet that if Microsoft donates a bunch of copies of Windows, or just gives them a number of licenses, to a non-profit, that counts as a charitable donation. Am I wrong?
If donating software to an organization counts as a donation, then one should be able to make a claim that by giving copyright to the FSF one is making a donation of goods, to be assessed at the market value of the code.
I suspect, though, that just releasing OSS by ones
Well, I have some advice... (Score:4, Funny)
and I think it may even be good advice. What is it worth to you though?
I was going to give it at no cost, but then I checked the license on your book and it has the NC clause in it.
So, Use BY-SA or BY instead and drop the NC and I will give the advice gratis. Or let me know if you are interested in paying for some advice.
I know this may sound snarky, but it is not meant in that way.
all the best,
drew
Here's how it works.. (Score:3, Insightful)
If you could write off the value of your time, all you'd have to do is work 40 hours/week, volunteer 40 hours/week and not pay any taxes ever.
Short Answer: You Can't; Longer Answer: Maybe (Score:3, Interesting)
For tax purposes your labor is worth exactly zero and thus your work to produce the book is worth exactly zero and that's how much you can legally deduct. Yeah, the laws are rigged against you but that's how the game is played. Any actual out-of-pocket expenses - cash you spend or credit on your cards - are deductible, however. But you either have to be donating the cost to a charity or taking it as a business loss by declaring it a side business.
I'm presuming you want something legally defensible if the IRS audits you. If you don't care about whether it will withstand an audit and expect your chance of audit is low, you can try it but if you get caught, if your tax goes up there will be interest and if the difference is big enough, penalties. If it can look like a simple misreading of the tax laws then that's all you might have to worry about. If the IRS thinks it was intentional tax evasion then it gets very sticky. So we probably want a better solution if one is available.
So the short answer is no, you can't deduct your labor, but, if it can be determined the book has some sort of value then you might be able to donate that to a charity; some authors have donated their personal papers and gotten estimates of their value, and could donate that and deduct that, legitimately.
But that's not where the story ends, which is why tax accountants and lawyers make big bucks. I don't know if either of the following is legal, it was just right off the top of my head, but, then again, I'm not a lawyer nor a tax accountant. So you'd have to ask one and if these aren't fully legal as is, you might still be able to use the ideas from one or both of them or some variant. Or an attorney might know a legal way to do it.
Again, I don't know if either of these will withstand scrutiny either, but a good tax accountant or tax lawyer might be able to figure a scheme that does work.
If you learn how things work it isn't that hard to do them. I have a corporation which I'm not using right now, it only costs $25 a year to renew its charter, so I do, and every year I file state and federal returns showing income and expenses as zero. Since it doesn't get paid anything and basically spends no money except for what I have it do, it requires very little trouble. Since I don't need the deductions right now, I don't use all of the rules that are allowed, but if I do I have the tools to do so.
You could set up your own non-profit corporation (will