Wages as charitable donation Sub-S Corp

[numberkruncher]

Sub-S Client wants to deduct employee wages and/or subcontractor work as a charitable deduction.
Expense were for 501(c)(3) start up and fundraising. There are detailed records of time spent
on 501(c)(3) work.

The Sub-S is a single shareholder corporation and Shareholder is the founder and President
of the Charity and is currently the primary contributor to the Charity.

My research shows no precedent for this and I say "no". I would expect ALL corporations
to take this kind of deduction, if it were okay with the IRS.

However, I'm open to new knowledge.
Does anyone know of this being done?

Thank you,
NK

[ChEAr$]

Sub-S Client wants to deduct employee wages and/or subcontractor work as a charitable deduction.
Expense were for 501(c)(3) start up and fundraising. There are detailed records of time spent
on 501(c)(3) work.

The Sub-S is a single shareholder corporation and Shareholder is the founder and President
of the Charity and is currently the primary contributor to the Charity.

My research shows no precedent for this and I say "no". I would expect ALL corporations
to take this kind of deduction, if it were okay with the IRS.

However, I'm open to new knowledge.
Does anyone know of this being done?

Thank you,
NK

Interesting idea by the owner. And not to say he isn't right about treatment of those wages on a corporate tax return.
You didn't say what kind of business the corporation is in, but suppose it's a contractor who builds buildings, for profit of course. Any labor shunted over to building for a non profit would not be producing income, but the value of those wages (cost plus payroll taxes) could very well be argued as a charitable contribution. I see no problem.
Remember, we're not talking about double dipping here. Those wages will not go on page one of the 1120S. For to do so plus pass through same to shareholder would be a double deduction.

[Roland Slugg]

I thought wages paid by a corporation were already deductible.

[Bees Knees]

The correct answer is you cannot deduct your time as a charitable contribution, regardless of whether it is a sole proprietor or an S corporation employee/shareholder doing this.

However, if the S corporation paid a wage to the employee/shareholder and the employee/shareholder pays tax on those wages earned, then the employee/shareholder could contribute the wages to the charity and take a charitable contribution deduction on the employee/shareholder's individual return.

[numberkruncher]

Wages as charitable donation Sub-S Corp

Good insight...thank you.

Can you direct me to the documentation that supports this form of donation?
I agree with your opinions, but I would love to see the IRS' docs before I talk
to my client. I know you're busy at this time of year, so just aim me in the right direction, if you can.

Another question...why bother? There is no limit to the wages/payroll tax deductions
in a Sub-S, but an individual's charitable deductions are limited to 50% of their AGI.

Perhaps my client doesn't understand the double dipping prohibition...

Shareholder is a teacher. 501(c)(3) is to fund and finance a training facility that
just happens to focus on this individual's area of expertise. If the federal grants,
that have been applied for, are granted, this shareholder will probably be employed to teach.

Thanks for any advice,
NK

[Bees Knees]

Can you direct me to the documentation that supports this form of donation?

IRS Pub 526, page 2, under chart of what is NOT deductible...

Value of your time or services

Your client is not asking a question thinking he/she wants to take a charitable deduction rather than a wage deduction on the S corp return.

Your client is thinking that his/her volunteer services to the charity should somehow be treated as wages donated to a charity, thus getting the benefit of a deduction for the value of the services that otherwise would have been paid as wages without the consequence of having to pay tax on those wages.

Ask your client what exactly does he/she hope to accomplish by treating the wages as a charitable donation? I'll bet the answer will be similar to what I suggested above.

[numberkruncher]

THANK YOU!

I came to the same conclusion, but feared that I was biased. I'm relieved to have a second opinion that mirrors mine,
even though you don't know my client personally.

I can, with confidence, answer NO to their request to claim their wages as a charitable donation...and NO to subcontractor payments, too.

Thank you again for the clarification of what could be allowed and your input.
NK

[numberkruncher]

Wages as Sub-S Charitable Deduction

Let me clarify my previous answer...

I will be telling THIS client that I won't support those deductions.

Thanks to your input, I know that I might have a future client who would be eligible.

Thank all of you again,
NK