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.
The value of a person's time is never considered as a charitable deduction by the IRS.
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.
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.
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.
What does it matter what you catagorize it as. If she discounts her billable hours her taxable income drops. Thats all that happens.
I would think that would be a question for an Accountant
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.
THANKS everyone ... very helpful.
We can now close this discussion.
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.