In Kind Donation

[smith33]

My client received $1000 for a job she did and the client considered her work worth $10,000. She was told $9000 was a In Kind Donation to a non-profit organization. She is on Schedule C for her business. Can she take the $9000 as a donation or a deduction. If so where can she take it? 

[Just-Lisa-Now-]

She can't donate something she never had. She just has less income to report.

They could have paid her the 10k, she claimed the income, then she could have donated 9k back to them and deducted it as charitable contributions, Sch A..

[dd4vols]

Contributions are NOT deductible on Schedule C. 

Did she get a 1099 form the tax advice giving non-profit? If so, what did it show as the NEC amount?

The only way she could have taken any kind of deduction is to claim $10k income on the schedule C and take the $9k as an itemized deduction on her Schedule A Itemized deductions in the Gifts to Charity section. Which creates SE tax in addition to Income Tax, and if she doesn't have enough itemized deductions to bump up her itemized deductions to more than the standard deduction, kind of a lose/lose situation.  

[TaxGuyBill]

In-kind donations are only 'feel-good' things.  They don't affect the income tax return.

[qbteachmt · Accepted solution]

I handle a lot of this; we have the most not-for-profit organizations per capita, outside of Berkeley CA. What you have is two different perspectives.

For the business person, they should show the FMV of the work performed, and the written off portion is a Discount. That person has not given a contribution; as one of our late friends here taught everyone, "You cannot write off what you never wrote on." So, you either report the Gross Revenue and the adjusted amount as "returns and allowances" or you simply report the amount you truly charged them.

The other perspective is the organization that benefits. They have proof of public/community support and can use these amounts in their financials, presentation, and for matching purposes for grants. Apparently, no one explained to them how to communicate this to their "business donor."

[smith33]

This sounds like the right way to put this on the return. How does putting it in Gross receipts but not in Gross Profit or Gross Income change the rest of the return at all? 

[sjrcpa]

The state or locality may have a Gross Receipts tax.

[qbteachmt]

"How does putting it in Gross receipts but not in Gross Profit or Gross Income change the rest of the return at all?"

The comment for Gross Receipts is for the perspective of your Provider. As a cash basis tax payer, she reports what she got paid.

For the receiving entity: Services (intangible donations in kind) are not reported for tax purposes. For example, the local NFP ball team proves they have 200 manhours of donated time pledged to help build the ball field and a business will sponsor the new game lights, so the city ponies up a grant against this evidence as "matching donation." The ball team will be reporting the grant (real money) and the value of the tangible assets (lighting) for tax reporting purposes.

The value of that labor is part of operations, internal financials and presentation, similar to unrealized gain/loss communication.