Possibly another crazy idea I had

[erchess]

The idea is to partner up with a charity. The charity communicates the offer to its regular donors, which means free advertising for me. The new clients make say up to $50 donations to the charity at the time their taxes are done and I give a dollar for dollar reduction in my fee.

1. Do I have to claim the amount of the donation as income? (This is not necessarily a deal breaker.)

2. At next tax season, who claims the donation, me, or the taxpayer? (I would prefer that it be the taxpayer but this is not necessarily a deal breaker either.)

3. Does the taxpayer have reportable income? (This one probably would be a deal breaker.)

4. Are there any other pitfalls I am over looking?

[ChEAr$]

Just one pitfall

The idea is to partner up with a charity. The charity communicates the offer to its regular donors, which means free advertising for me. The new clients make say up to $50 donations to the charity at the time their taxes are done and I give a dollar for dollar reduction in my fee.

1. Do I have to claim the amount of the donation as income? (This is not necessarily a deal breaker.)

2. At next tax season, who claims the donation, me, or the taxpayer? (I would prefer that it be the taxpayer but this is not necessarily a deal breaker either.)

3. Does the taxpayer have reportable income? (This one probably would be a deal breaker.)

4. Are there any other pitfalls I am over looking?

And that is that this is a sham transaction if you expect any results other than
1. you have income, and 2. you get the charitable contribution.

Provided you are a schedule c filer, you also pay SE tax on the income.

As for your client, he gets a great deal.

[erchess]

Thank you Harland

I think the point about sham transaction is well taken. It is as I had feared my income and my deduction. (Would anyone care to disagree? More people have viewed this than have posted but that's typical on any board.)

I can see how the charity makes out like a bandit, but why is the client getting such a deal? The value of their contribution is equal to the value of their discount, which means that they pay for the service the same amount as if they had found my ad in the phone book.

I think that if I do this at all I will simplify things by taking one payment for the full charge from the client and writing one monthly or weekly check to the charity. On the other hand, maybe the clients recruited in this way will expect some proof that I keep my end of the deal.

Another little point will be the retention and trouble rates of clients obtained in this way. Anyway thank you again Harland and thanks in advance to anyone else who contributes thoughts.

[veritas]

You may be on to something here

The idea is to partner up with a charity. The charity communicates the offer to its regular donors, which means free advertising for me. The new clients make say up to $50 donations to the charity at the time their taxes are done and I give a dollar for dollar reduction in my fee.

I think I may use your idea but with a slightlt different twist...

Carbon Credits!

The tree muffins in my area will be drawn like the envirozombies they are.

Plus I intend to market the carbon credits.

[BOB W]

Do you publish your fee structure? Most new clients may think you may be jacking up your fees for some or all of what you will charge them.

[Lion]

Fund Raiser

I went to a fund raiser at a store for my daughter's class. The store asked us to bring an extra check. When we purchased our items, we paid 90% to the store (by check or charge or cash) and also wrote a check to the youth group for 10%. As treasurer of the youth group, I went to the bank with a fist load of checks to deposit.

[erchess]

To Lion

Lion, in this scenario, what are the tax consequences for the store and for the people who bought and donated?

I was hoping for and I bet your store was hoping for their income to be equal to the cash received but I am persuaded by Harlan that the business must include the donation in income and then claim the charitable deduction. (Where would vary from taxpayer to taxpayer.)

I was also hoping the buyer/donor could claim the deduction but Harlan has me convinced that the IRS wouldn't like that particularly if the customer was not claiming the discounted fee as income.

[Lion]

Tax Deduction

Well, as a purchaser supporting my daughter's class, I had a check written to a charity and I did deduct that amount on my own Schedule A. I was the treasurer for the class project, but just fed our financial information to the CPA who prepared the 990 for all the classes under the Town Youth Authority umbrella. I'm assuming it was all fund raising income on the 990. I have no idea what the store did. I do know that they told us they could charge full prices and issue a check from corporate to the Youth, but that it would take weeks. In that case, I guess they report full income and deduct a charitable contribution at the corporate level. Since the store offered us the "dual check" method, I can only guess that their income is 10% less like during any other open sale (this was a one night event where all sales were treated the same for our Youth Authority), and that the store has no charitable deduction. But, I wasn't involved from the store side at all. I have no retail clients. What do stores do when they have sales? Is income what they receive? Or, is it the full retail price with the sale deduction booked under something else, like Allowances? If the latter, then I can see the problem with it not being a true discount, but contingent on the customer donating the discounted amount to a specific charity. (I once went to court to respond to a traffic ticket, and was offered the chance to donate $50 to a charity instead of having a ticket go on my record!)

[ChEAr$]

Assuming the store is incorproated

and files 1120 their deduction for charitable contributions is 10% of income. Hmmmm!!??

So then, if this late in the year and they see they're already going to exceed that
limitation and would just have to carry over till next year unused deduction, by participating
in this 10% off reduction in sales price, they're effectively deducting excess charitable
contributions.

Don't know that to be the case here, but under these circumstances, it would be another sham.

[Bees Knees]

and files 1120S, their deduction for charitable contributions is 10% of income. Hmmmm!!??

The 10% of income limitation for charitable contributions only applies to C corporations, not S Corporation.

An 1120S would simply pass 100% of a charitable contribution through to the shareholder, who in turn would be subject to the 50% or 30% or 20% AGI limit on Schedule A.

[Lion]

Chico's

The store was Chico's, probably a C-Corporation and probably not donating over 10% of their corporate income. After all, the event I attended as a customer was only in one store for a few hours one evening out of nearly 365 open days/year. But, I wrote a check to a charity that night, so I definitely deducted it on my own return! And, I added up all the checks our class project received to report to the CPA who prepared the 990 for the town's youth programs.

[joanmcq]

I don't think there is any income or deduction on the store level. They are having a 10% off sale, and to get the 10% off, you have to donate to the charity. At least this is probably how it was reported. At least this is how it makes sense to me.

[erchess]

Hmmmm

Well if the store and its customers can get by with that, why can't I and my clients?

[ChEAr$]

Correction has been made

The 10% of income limitation for charitable contributions only applies to C corporations, not S Corporation.

An 1120S would simply pass 100% of a charitable contribution through to the shareholder, who in turn would be subject to the 50% or 30% or 20% AGI limit on Schedule A.

to my post, since I MEANT 1120C! For I do know the difference.

[ChEAr$]

because

Well if the store and its customers can get by with that, why can't I and my clients?

it's still a sham transaction and subject to dire consequences upon audit. IF audited
of course.