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  • 1.  Gift in kind deductibility

    Posted 07-22-2024 01:15 PM

    Question presented from our VP:

    If a general contractor provides services to the university (labor), can that general contractor write off, as a tax deductible gift, the total cost of the job, including the labor paid to employees?

    We know that in general, services provided by an individual are not tax deductible. In other words, an attorney that provides four hours of free work to a nonprofit, cannot take a tax deduction for their $250 an hour fee. The only deduction they can take is when they actually spend money out of pocket (mileage, paper, printing copies, etc.).

    However, if the attorney were to pay a paralegal (one of his employees) for 10 hours of work ($150 an hour times 10 hours equals $1500), could the attorney then write off those hours paid (services rendered) because it was an out-of-pocket expense to the attorney?

    And back to the question at hand, can a general contractor pay his workers to perform services for the university, and then take a tax deduction for those services provided?

    Thanks...Darrell



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    Darrell Rainwater
    California Baptist University
    drainwat@calbaptist.edu
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  • 2.  RE: Gift in kind deductibility

    Posted 07-22-2024 01:30 PM
    The short answer is no. You are still receiving free services.

    The longer answer is that you should never offer tax advice to any donor for any reason. Further, unless you receive an invoice for said services - and pay that invoice - and then receive an unanticipated charitable contribution from the same service provider - a payment that was never promised or implied - then you would have a gift to process.

    John

    John H. Taylor
    919.816.5903 (Cell/Text)

    Big Ideas; Small Keyboard



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  • 3.  RE: Gift in kind deductibility

    Posted 07-22-2024 01:44 PM

    Hi Darrell,

    As you suspect, it is a gift of service so would not be deductible. As John T. indicates, you should not give the donor tax advice for a number of good reasons. Never-the-less It might be helpful to look at it from the IRS's standpoint to understand why and because gift officers often ask about this type of thing.

     

    From their standpoint, if the contractor is purchasing supplies and paying labor, they are already expensing these costs against revenue in their Profit and Loss statement. So, the IRS is saying: "no you can't take two deductions for it."

     

    If someone does not charge you for services they volunteer and they have no actual out of pocket costs, then they are not collecting any taxable revenue so there is nothing to deduct against. So, in this case, the IRS is saying: "you can't deduct against income you didn't collect."

     

    Some CRMs do have "Service" in their gift entry selections which is nice for ongoing cultivation/engagement purposes but it should not be counted in fundraising totals, campaign totals, or VSE.

     

    Thanks,

     

    John Smilde

    Director of Gifts and Records Administration

    Advancement and Alumni Relations

    George Mason University

    4400 University Drive, MSN 1A3

    Fairfax, VA 22030

    703.993.8680

    jsmilde@gmu.edu

     

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    §2.2-3705.4.7. of the Code of Virginia.

     

     

     

     




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