Donations for Hurricane Katrina (Partnership)

[Young Guy]

I have a client that owns a racetrack. His business is a partnership with a 1065 return. He was thinking about donating the receipts to an organization for the Hurricane Katrina victims (Red Cross, or something similar). He was wondering how and if he could get a tax break for this. Last year the partnership had a $6,380 loss. He would like to donate all the receipts if possible from ticket sales, soda, beer, snacks, and have the workers donate their wages.

Do all the receipts have to be included in income, or is there a way around this, like all the money received from soda, etc. going directly into a donation pail?

Are the employees the ones that deduct the donation for wages, or does the partnership? The employees normally get paid once a month by check.

Any help is greatly appreciated.

[Bees Knees]

A partnership would report total receipts collected as income. Net income or loss is then passed through to each partner on line 1 of the K-1. Then, if the partnership chooses to make a donation to a charitable organization, the amount contributed is passed through to each partner’s K-1 as a separate deduction item on line 13, Code A or B. The partner then uses that information to take a charitable contribution deduction on his or her individual return.

[Armando Beaujolais]

I have a client that owns a racetrack. His business is a partnership with a 1065 return. He was thinking about donating the receipts to an organization for the Hurricane Katrina victims (Red Cross, or something similar). He was wondering how and if he could get a tax break for this. Last year the partnership had a $6,380 loss. He would like to donate all the receipts if possible from ticket sales, soda, beer, snacks, and have the workers donate their wages.

Do all the receipts have to be included in income, or is there a way around this, like all the money received from soda, etc. going directly into a donation pail?

Are the employees the ones that deduct the donation for wages, or does the partnership? The employees normally get paid once a month by check.

Any help is greatly appreciated.

Last year the business had nearly a $7,000 loss? I think you might be looking at a hobby, especially if the business is going to donate a bunch of stuff to charity. I think it's great that people are pouring donations into the Katrina effort, but it seems to me the effort should be as an individual. I'd say that for a business that's losing money, making charitable contributions doesn't fit with the profit motive.

Workers donate their wages? Sure, but only after those wages are earned, withholding taken, taxed. They can donate their take home pay. But they don't get any deduction for their time.

A lot of things don't make sense on this one.

[Bees Knees]

Last year the business had nearly a $7,000 loss? I think you might be looking at a hobby, especially if the business is going to donate a bunch of stuff to charity.

Hobby?

Hobby loss rules can apply to partners in partnerships. But I would not call a business a hobby just because the owners want to donate to a charitable cause, even if the business has a history of losses. Charitable donations from a partnership are not business deductions. They are treated as separate expenditures by the individual partners of the partnership. Therefore, they should have no bearing on deciding if the business has a profit motive or not.