15 Nov Valuing Time (In-Kind Donations)
15 November 2022
By David Allen, Development for Conservation
Have you ever known something completely and been just as completely inept at explaining it to someone else? That’s the way I feel about the tax-deductibility of in-kind gifts.
So here’s another attempt. Let me know if this makes any more sense than the last time I tried it.
Say someone gives you a painting. It’s a special painting that they spent hours creating. Say it took them 20 hours. So along with the painting, they ask you to sign a receipt that values the painting at $400. You think that’s probably reasonable given the time they have into it. Plus, it will look nice in your office.
HINT: There is no way you should sign that receipt.
Why? Because in the eyes of the IRS, they gave you a piece of art paper and some oil-based paint. $19.95 on a good day.
As far as the IRS is concerned, time has no value. Sorry.
And the value of the “art” is in the eye of the beholder. That changes, of course, in the presence of a qualified appraisal, but a good tax advisor will still tell you to prepare an acknowledgement that documents your receipt of a painting – without assigning any value. Let the artist take it up with the IRS.
But here’s the bottom line: The value of the donated time is not tax-deductible because it was never declared as income in the first place. That’s not just true for artists. That’s true for anyone: lawyers, accountants, arborists, range ecologists, lobbyists, executive directors – literally everyone. They can donate their time, but they can’t put a value on it and deduct that value without also declaring that same value as income – and that would defeat the whole purpose.
So we shouldn’t either.
I am NOT a tax advisor! And this should not be confused with actual legal advice.
This comes up now and again, when time donors (aka volunteers) want to get “credit” for the time they contribute as if they had contributed cash. I had a Board Chair tell me in all seriousness that he should be recognized as a $10,000 donor because of all the pro-bono legal work he did for the land trust. Or when, as community engagers, we want to recognize time donors alongside cash donors by tracking their volunteer time as in-kind donations.
Many organizations track volunteer hours, multiply by $25 or so, and report on the value of their volunteer labor as a cash equivalent. There isn’t anything unethical about doing this, but it feels cheap to me – like it actually undervalues both the volunteers’ labor and the donors who gave money instead.
All that said, there is a time and a place for counting and even recognizing in-kind gifts of time. And that time and place is when the value of what is being given actually offsets a budgeted line item. Say a printing company donates the paper and ink to print your newsletter. And because they do it for free, you don’t actually need to spend the $2,000 on printing that you would have had to spend otherwise. As long as the printing expense was included in the budget, the in-kind gift can also be in the budget. The expense item that you put in the budget should be (approximately) what you would have had to pay for the printing otherwise.
Now stay with me here: This ONLY works at the budget level. The actual expense on the financials would still be zero (because that amount of money was never spent!), but it can still be budgeted for $2,000. With the in-kind contribution on the revenue side counting to offset it.
This idea also works for legal expenses. The Board member I referenced earlier could have been legitimately recognized as a $10,000 donor if the budget had included $10,000 in legal fees with an off-setting entry for in-kind contributions. (His time still wouldn’t be deductible!)
In fact, this is a preferred alternative. If your organizational programs are dependent on a volunteer lawyer, bookkeeper, stewardship director, or even executive director – any position that you would have to replace when that volunteer moves or retires – including the expense in the budget is a good practice. That way, at the very least, you know what it takes to run your program.
Taken to the logical extreme, if 100% of your operating expenses were completely donated, creating and formally approving an organizational budget would still be considered a best practice. Your Profit and Loss statement would read zero. But the budget would show you what it actually cost to run the organization.
How’d I do?
Cheers, and have a great week.
PS: Your comments on these posts are welcomed and warmly requested. If you have not posted a comment before, or if you are using a new email address, please know that there may be a delay in seeing your posted comment. That’s my SPAM defense at work. I approve all comments as soon as I am able during the day.
Photo by World Wildlife courtesy of stocksnap.io.
Robert RossPosted at 09:35h, 15 November
The IRS form for donations of property is 8283; a link below for the form itself.
Robert RossPosted at 09:20h, 15 November
A good summary for individuals: https://turbotax.intuit.com/tax-tips/charitable-contributions/video-does-the-irs-allow-deductions-for-donated-work/L7E8lfSAh
Charities should keep track of volunteer time even if there is no tax benefit if its significant enough in volume and easy to keep track of.
At the Trail Conference, for example, volunteers below the Trail Chair and Director level fill out time cards. We donated 100,000 hours last year, and currently that time is valued for statistical purposes at $2.8 million. [I’m not sure of the exact dollar value for 2021 but it’s around $28 an hour.] That number is used when the Trail Conference is competing for public and private funding, and was also very useful in getting a four star Charity Navigator rating.
The rules on art work, for example, depend as David writes, on appraisals. There is an IRS form 8283 and rules relating thereto that spell all that out: see https://www.bnymellonwealth.com/articles/strategy/how-to-make-tax-deductible,-charitable-donations-of-artwork.jsp
Again, I’m a lawyer but not a tax lawyer; read this with that caution in mind.
David AllenPosted at 07:31h, 15 November
From my inbox this morning:
Thank you, this was super helpful!