Last month, I wrote about how the tax law anesthetized in 2017 — clearly the Tax Cuts and Jobs Act (TCJA) — will anon accompany big changes to accommodating giving.
Based on clairvoyant feedback, I now appetite to abode a longstanding convenance apropos accommodating giving in the art apple that needs to end. I’ve accounting on this affair afore for Art F City, but the convenance continues in the art world, and it bears revisiting.
This convenance usually begins with a conversation: administrator of non-profit X asks artisan Y to accord an artwork for an accessible fundraiser (or sometimes its a for-profit alignment soliciting assignment for a alms fundraiser). Artisan Y is afraid — he’s been asked for assignment from bristles altered organizations in the aftermost month. The arts alignment administrator makes a ambiguous acknowledgment of tax deductions, and so the artisan agrees to accord a baby painting. A few months afterwards the benefit, the artisan opens a letter from the organization, adage acknowledgment for the donated work, and advertisement its auction price. With this acutely official letter in hand, it’s accessible for the artisan to achieve that they can abstract that sales amount on their taxes.
But this is incorrect. Here’s why: back an artisan makes work, the IRS considers that assignment to be a “self-created asset.” The artisan can booty a answer abandoned for the amount of materials, not the labor. But for best artists, the amount of the assignment derives mainly from the activity that they put into it. Picture a allotment by artisan El Anatsui, whose ablaze chainmail-like tapestries are agilely stitched calm out of canteen caps. The abstracts by themselves are abandoned —it’s the activity that turns them into art.
Despite that, beneath the accepted tax code, if El Anatsui acclimated 30,000 begin altar additional $10 of fasteners, and spent 1,000 hours of activity creating a piece, he’d get to abstract aloof $10 for altruistic that piece.
It gets worse. If you’re a able artisan (as against to a hobbyist), you accomplish an arts business. This agency that on the aforementioned tax anatomy area you account your art assets (that’s your Schedule C), you additionally get to account your expenses. This is great, because it agency you’re abandoned advantageous taxes on your accumulation — not on your absolute revenue. So if you’re like best artists, you already abstract all your abstracts on your Schedule C.
The IRS does not acquiesce “double-dipping,” however. So if you’ve deducted the abstracts already as an art amount on your tax return, you may not afresh abstract them afresh as a accommodating expense. In added words, afore you anytime donated the piece, you already had all the answer you were activity to get for it. Back you accord assignment to the charity, you may admonition an alignment do acceptable work, you may get the balmy fuzzies, you may get a acknowledgment on the brochure, but you do not get any tax deduction.
I’m both an artisan and an accountant, so I’ve been on both abandon of this affair — I’ve donated lots of artwork to art benefits, and I additionally do the taxes of abounding artists who accord artwork and generally feel cheated back they apprentice that their donation gives them no account on their taxes admitting what acquainted like a affiance (or at atomic a suggestion) from the alignment to which they donated.
Non-profits, I feel for you. You charge funds, and there are changes in the tax law this year that are activity to actively aching your basal band (see my aftermost article). But can we all accede to end the convenance of soliciting artwork with promises — or alike suggestions — of tax deductions? It’s arbitrary and misleading. And we apperceive you’re bigger than that. Artists tend to be generous, and appetite to admonition you do good. So I’m calling on you to accumulate your solicitations focused on your acceptable assignment and how the artist’s donation will admonition you do added of it.
DISCLAIMER: True tax admonition is a two-way conversation, and your accountant needs to apprehend your abounding bearings to administer the rules accurately in your case. This column is meant for accepted advice only. Please don’t act on this alone.
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