Client wants to claim some billable hours as charity?
Here is the deal:
She has a client who is both handicapped and going broke ... charges only 2/3 of billable hours & wants me to categorize it as charity.
Thoughts??
Legal?
Thanks
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May 10, 2014
Unfortunately, her unbilled time can't be considered a charitable deduction by the IRS. C'est la vie. She either needs to dump the client or charge fair market value.
May 5, 2014
To qualify as a charitable organization you have to be registered as a charity with the government, which I assume the client is not.
All that can be done now, is expense the costs as charitable donations by the client organization, if that is possible. Check with your local tax accountant.
What type of work does the client do? There maybe some leeway regarding the type of work done so that you may gain some recognition by government agencies which qualifies for some government support.
Also. there may be some help regarding client expenditures, if personal in nature, that can be extracted from government support agencies. More detail is required to assist the client.
May 5, 2014
What does it matter what you catagorize it as. If she discounts her billable hours her taxable income drops. Thats all that happens.
May 5, 2014
If you are in Canada - Here's how it can work.
The individual MUST BILL the amount & receive a cheque for it. This is recorded as business income.
THEN, she can (as per a prior agreement perhaps) Donate some or all of it back. This is processed in the normal method of dealing with donations. So ...
1. Bill, say $5000 at full retail. (+ HST if applicable)
2. Receive payment of Full amount
3. Cut Cheque to the charity for agreed upon donation - anything up to $5000
4. Receive Donation receipt & process on your tax return.
There is actually a benefit to this - in that the tax rate applicable to Donations over $200 is at the highest marginal tax bracket REGARDLESS of your personal tax bracket.
May 5, 2014
Your client cannot take this activity as a deduction for two reasons.
1. A charitable deduction must be to an organization that meets the requirements of a charity such as a 401(3c) or a church.
2. IRS regulations specifically exclude the value of hours worked as a legitimate charitable deduction.
May 5, 2014
The only way for your client to have gotten a deduction would been to bill at full a rate and accept a settlement. the difference would be a write off.
May 5, 2014
Brad,
That could be a dangerous approach since writing off a bad-debt (what you are proposing) requires a good faith attempt at collecting the debt. I doubt it would survive an audit.
May 5, 2014
The value of a person's time is never considered as a charitable deduction by the IRS.
May 5, 2014
Indeed - now another Q arises here - what is the difference between pro-bono v charity?
Thanks in advance ...
May 5, 2014
Pro Bono is a latin phrase that means to do work without charge as when a lawyer takes a case without charging for services.
Charity in tax terms is a potential deduction for goods, or other property or expenses to the benefit of a recognized charity for which the donor receives little or no value in return.
Of course this is only applicable if the client is registered as a charity. If not, she cannot claim donation.