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    Charity Limits

    One of my C Corps left $8K on the table last year for Charitable Contributions that they couldn't deduct because they were over the 15% limit. At the time the president told me he hoped he could deduct it next year.

    The president has become increasingly involved in more and more Chamber of Commerce activities, fundraising, charitable events, etc in the last several months. He has already spent more than in the previous year, with profits estimated to be less. Part of his public image pitch is to tell listeners how much his corporation is donating to charity.

    The information above is presented so the reader can conceptualize what is going on. I'm now ready to pop the question.

    He has (against my vehement objection) instructed his in-house accountant to open up a special labor account for charity "labor." When his people run out of something to do on their regular jobs, he has them do graphics for the high school, maintain computers for the hospital, etc. There will be at least $25,000 worth of charity "labor" charged to this account in addition to the cash contributions. This labor will be allocated with another 45% of fringes, meaning the books of account will show $36,000 in additional charity expense as a result of opening up this special labor account. Remember, his agenda is to publicize to various town fathers the maximum amount of charity.

    Question: Can this $25,000 simply be deducted as "Labor" since it will be backed up with
    W-2s, and the Fringes simply be reported as they were before allocation (payroll taxes, medical insurance, etc.)?? This is what would have happened if he had not drawn separate attention to the labor being spent on charity projects.

    My objective (obviously) is to keep as much expense fully deductible without increasing the already over-limit charity amounts.

    #2
    Individual cannot deduct value of own labor as charity

    A useful point of comparison is that, as I believe we all already know, an individual cannot deduct as a charitable contribution the value of his own labor, no matter how recognized and valuable his labor may be.

    Comment


      #3
      Yes, but

      Good response Otis, but we're not talking about an individual.

      The corporation actually DOES have out-of-pocket expense because they paid their own employees to do charity work.

      I guess the question is reduced to a choice of the following:

      1) The Labor spent on charity is deductible because it is Labor supported by W-2s, and not simply payments made to charitable organizations.
      2) The Labor spent on charity is NOT deductible as anything else because it fails the "ordinary and necessary" operational test.

      Again, if its president had not opened this special labor account to track "Labor for Charity" there would not even be visibility to this, and the labor would be deductible without question.

      Comment


        #4
        A possible solution

        Since the corporation's charitable contributions already exceed its deductible limit, and I'm inferring from your post that you expect that to be the case for some time into the future, it might be better for the president to increase his own salary, then pay the workers who do charitable work out of his own pocket. Then HE can take the deduction on his own return, subject to the 50% limitation applying to individuals.

        He can also set up a private charitable foundation, contribute to it, and have it employ the workers. However, a 30% ceiling may apply here ... not sure.
        One of my C Corps left $8K on the table last year for Charitable Contributions that they couldn't deduct because they were over the 15% limit.
        Hope that was just a typo, Snag. A corporation's charitable contribution limit is 10% of its taxable income, not 15%. (Code ยง170(b)(2))
        Roland Slugg
        "I do what I can."

        Comment


          #5
          Roland

          Yes, it was either a fat finger mistake, or a brain lapse, hard to remember. I don't fill out a C corp, S corp, or Partnership without TTB by my side. The charity was properly limited to 10%.

          The president will not do any of these things (start a foundation, funnel through his personal acct).

          I don't think anyone who has posted has really expressed a definite "yes" or "no". If they're like myself, maybe they don't know, or maybe they just don't have a president choosing to glamorize his public image at the expense of tax dollars.

          Comment


            #6
            Charity

            With all my wealthy clients, I seldom see any charitable carry forwards for individuals nor entities. Sad. So, I'd have to research if it comes up.

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