Have my clients contribute to a charity in lieu of payment

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Rob5TCP
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Have my clients contribute to a charity in lieu of payment

Post by Rob5TCP » Wed Feb 26, 2020 9:57 am

Since I take the standard deduction (not mortgage); and most of my income comes from my business, i was considering an alternative way of making charitable contributions fully deductible.

Near the end of the year I send a $2000 or more invoice to a client. I give them the option of paying the full amount or
paying me 75% and for the other 25% have them write a check to one of several charities.

The net cost to them is the same (assuming they can take the deduction on their taxes). I get to make a charitable deduction and in a round about way; take if off both state and Federal.

Is their something I am missing. Is this legal ?

Another option is to not invoice them at all and have them just write a check for the full amount to the charity (this would be on a smaller invoice).

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bottlecap
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Re: Have my clients contribute to a charity in lieu of payment

Post by bottlecap » Wed Feb 26, 2020 10:11 am

There are two issues I see.

One is pushing your clients to contribute to charities limited by your choice in lieu of payment, which is quite presumptive.

The other is that I can almost guarantee you, having had some familiarity with the tax code and tax law (but not looking it up for you), that the IRS would consider any amounts contributed to charities in this manner taxable income to you.

When you direct where the money goes, the net effect is that you are receiving it and then donating it yourself.

JT

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Rob5TCP
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Re: Have my clients contribute to a charity in lieu of payment

Post by Rob5TCP » Wed Feb 26, 2020 10:16 am

I was afraid it might be considered barter - or there would be some other law I was running afoul of.
I do have a DAF, but there are years my income is lower and i don't contribute to the DAF and I thought
this might be an end run around.

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Rob5TCP
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Re: Have my clients contribute to a charity in lieu of payment

Post by Rob5TCP » Wed Feb 26, 2020 10:17 am

As far as charities, I could ask them if they had any favorites (that I also was inclined to contribute to)
This would only be offered to clients I have been working with for many years and have mutual trust with.
Last edited by Rob5TCP on Wed Feb 26, 2020 10:23 am, edited 1 time in total.

BuddyJet
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Re: Have my clients contribute to a charity in lieu of payment

Post by BuddyJet » Wed Feb 26, 2020 10:19 am

Another vote for this being taxable as assignment of income.

https://www.irs.gov/businesses/small-bu ... ble-income
People say nothing is impossible. I do nothing all day.

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Rob5TCP
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Re: Have my clients contribute to a charity in lieu of payment

Post by Rob5TCP » Wed Feb 26, 2020 10:24 am

BuddyJet wrote:
Wed Feb 26, 2020 10:19 am
Another vote for this being taxable as assignment of income.

https://www.irs.gov/businesses/small-bu ... ble-income
Questions answered - thank you very much.
Not the answer I was hoping for.

TN_Boy
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Re: Have my clients contribute to a charity in lieu of payment

Post by TN_Boy » Wed Feb 26, 2020 10:37 am

Rob5TCP wrote:
Wed Feb 26, 2020 9:57 am
Since I take the standard deduction (not mortgage); and most of my income comes from my business, i was considering an alternative way of making charitable contributions fully deductible.

Near the end of the year I send a $2000 or more invoice to a client. I give them the option of paying the full amount or
paying me 75% and for the other 25% have them write a check to one of several charities.

The net cost to them is the same (assuming they can take the deduction on their taxes). I get to make a charitable deduction and in a round about way; take if off both state and Federal.

Is their something I am missing. Is this legal ?

Another option is to not invoice them at all and have them just write a check for the full amount to the charity (this would be on a smaller invoice).
For what it is worth, regardless of the tax laws (which seem not to work for you here) I would find such a option annoying and unprofessional.

I would rather keep my business transactions and personal charitable contributions separate. I'd also not want to spend time writing checks to you and a charity.

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jhfenton
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Re: Have my clients contribute to a charity in lieu of payment

Post by jhfenton » Wed Feb 26, 2020 10:53 am

Rob5TCP wrote:
Wed Feb 26, 2020 10:24 am
BuddyJet wrote:
Wed Feb 26, 2020 10:19 am
Another vote for this being taxable as assignment of income.

https://www.irs.gov/businesses/small-bu ... ble-income
Questions answered - thank you very much.
Not the answer I was hoping for.
What you could do is discount the invoice. Period. No strings attached. And then include a note that suggests that they consider paying the discount forward to a charity of their choice, such as A, B, or C.

adamthesmythe
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Re: Have my clients contribute to a charity in lieu of payment

Post by adamthesmythe » Wed Feb 26, 2020 11:16 am

The act of suggesting charities mixes personal and professional in a way that I would find disturbing.

And the particular charities mentioned are guaranteed to turn off at least some clients.

niceguy7376
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Re: Have my clients contribute to a charity in lieu of payment

Post by niceguy7376 » Wed Feb 26, 2020 11:18 am

Rob5TCP wrote:
Wed Feb 26, 2020 9:57 am
The net cost to them is the same (assuming they can take the deduction on their taxes). I get to make a charitable deduction and in a round about way; take if off both state and Federal.
I dont think that your client accounting department will consider this the same. If they make a charitable contribution, how can you deduct it from state and federal? Are you saying that your income (sole prop or S Corp?) will be less and thus less federal and state?

inbox788
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Re: Have my clients contribute to a charity in lieu of payment

Post by inbox788 » Wed Feb 26, 2020 11:39 am

It's not straightforward, but I believe there are ways to achieve what you desire. Depending on the amount, you might seek professional tax advice and legal help. While there are exchanges of goods or services and/or barter, the value and consideration isn't simple. If you donate your time to the charity, it's simple. If the client donates cash to the charity, it's simple. The value you receive from the charity for any exchange can be considered zero, and when all the complex reporting is done at the client and your books, the tax effect should similarly be zero (but may not be for a variety of reasons). The main point is if anyone is receiving any benefit, such as tax deduction from the transactions or amounts, that it's clear who receives it or whether it's transferable, and especially that it's not being taken more than once. Trying to take a charitable deduction on your income that you have the client pay to a charity sounds a lot like the latter. You shouldn't even be trying to deduct your time. Same if the client tries to write off the cost as well as take a charitable deduction on the payment.

I've seen accountants and lawyers donate tax preparation or will making services to charity auctions. I haven't seen such services sold directly to a client, but I suppose it's similar to how they have to deal with a donated car, timeshare, or other noncash donation. If you do a lot of this, you might look into whether you could incorporate a nonprofit to formalize certain arrangements.

https://www.inc.com/magazine/20110501/t ... brids.html

hitchman
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Re: Have my clients contribute to a charity in lieu of payment

Post by hitchman » Wed Feb 26, 2020 11:46 am

No one seems to have mentioned a concern that came to my mind. If a vendor tells me to donate a portion of my purchase price to charity, I would immediately assume that the vendor is overcharging me. That would jeopardize the relationship, IMO. If you wish to donate, do it on your dime, on your time, and in your own way.

inbox788
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Re: Have my clients contribute to a charity in lieu of payment

Post by inbox788 » Wed Feb 26, 2020 12:52 pm

jhfenton wrote:
Wed Feb 26, 2020 10:53 am
Rob5TCP wrote:
Wed Feb 26, 2020 10:24 am
BuddyJet wrote:
Wed Feb 26, 2020 10:19 am
Another vote for this being taxable as assignment of income.

https://www.irs.gov/businesses/small-bu ... ble-income
Questions answered - thank you very much.
Not the answer I was hoping for.
What you could do is discount the invoice. Period. No strings attached. And then include a note that suggests that they consider paying the discount forward to a charity of their choice, such as A, B, or C.
I doubt this will practically achieve what OP wants. It's more like advertisement, and will likely yield low advertisement like action rates. And I don't think a more formal exchange would run afoul of IRS rules. Some vouchers for 10% discount or 10 hours of service for a $500 donation might get the charity the donations they need. Both OP and client need to be careful about what value of benefits and what amount of donation may be deductible. These convoluted maneuvers are necessary to get around the asymmetries in the tax codes.

https://secure2.convio.net/wnet/site/Ec ... re_id=1141
https://cobblestone.com/coupons/free-wa ... -donation/

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Rob5TCP
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Re: Have my clients contribute to a charity in lieu of payment

Post by Rob5TCP » Wed Feb 26, 2020 7:12 pm

In the end, the tax savings aren't worth the problems that may ensue.
I will probably stop giving until I have a really strong year and then donate a substantial portion of
my income to a Donor Advised Fund. Then over the next 5-10 years donate money from the fund.

I thought my other idea would allow me to do some charitable giving even in leaner years (I prefer to give the
most when my income is the highest and I can actually deduct the donations).

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cowdogman
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Re: Have my clients contribute to a charity in lieu of payment

Post by cowdogman » Wed Feb 26, 2020 8:59 pm

I think the IRS would frown on you manipulating your adjusted gross income (possibly to your advantage--e.g., the ACA cliff) and/or effectively getting a charitable deduction where you might not otherwise (e.g., if you don't itemize). Plus all the other tax-related reasons discussed above.

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Re: Have my clients contribute to a charity in lieu of payment

Post by BuddyJet » Wed Feb 26, 2020 9:41 pm

A DAF, once adequately funded, allows for contribution peaks and valleys but charitable contributions to be steady. When you talk about contributing a large percentage of income, remember that there is a limit to the percentage of charitable contributions that can be deducted in a year. Also, rather than contributing cash, look at contributing appreciated securities first.
People say nothing is impossible. I do nothing all day.

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