Steve Slatin on wed 24 dec 03
Bonnie's advice on this subject was quite lucid and much more =
than my own. If you read it and didn't find it chock-a-block with =
moments, I'd suggest going to the key recommendation she made, below, =
following it to the letter. CPA's take years learning how to deal with =
stuff, pay them their fee and learn. It's often not necessary for
craftsmen/artists to go to them more than once; after things are set up,
many people find that they can follow the formula. =20
>My advice in general for ALL first year businesses is to consult an
>experienced CPA/tax preparer to get a basic education before you file =
>first tax return. You may not be aware that you are making elections =
>choices when you file that first return. You want someone who will =
>things to you in a way that you can understand the choices you are =
>IMHO Turbo Tax and Kiplingers may do a decent job preparing a tax =
>but they don't explain the ramifications of choices you are making, or
>necessarily explain that there may be some choices on that first =
Bonnie/Jeremy Hellman on wed 24 dec 03
Rudy and others,
What you write here is true, Rudy, that a Schedule-C-filing living artist
(who is not an employee of his/her own business) is not allowed a deduction
for any charitable contribution of work created by that artist.
Hypothetically, if I have a ceramics business, file Schedule C and spend 20
hours creating my ceramic masterpiece, and donate it to the charity of my
choice, who sells it for $50,000, I get to take $0 of charitable
contribution. Same thing if the charity of my choice sells my masterpiece
for $20. However, on my business return, I have already deducted the $3
worth of materials (clay, glaze, firing costs) that went into making my
masterpiece. And that's all I get to deduct whether I donate the work to
charity or sell it.
If you are my employee, and create this ceramic masterpiece while working
for me, I may have paid you a salary of $15 an hour, so you earned $300 in
the 20 hours I paid you to create this piece. My business will have deducted
that $300, plus employer taxes, workers' comp, any benefits I paid you as
an employee and any other costs and expenses associated with having you as
my employee. If I donate this work to the charity of my choice, I've already
deducted the $300 plus associated payroll expenses and the $3, so I can
deduct nothing more, regardless of how much the charity realizes when it
sells the piece.
If you buy my masterpiece from me at the reduced price of $1,000, I will
include the $1,000 on my business tax return, say my schedule C, as income.
If you donate this masterpiece to the charity of your choice for their
charity auction, you will get a charitable contribution of $1,000 on your
Schedule A, which might be a tax deduction to you on your US tax return. If
you wrote a check to that same charity, you'd have spent $1,000 and the
charity would have $1,000 in contributions.
Rudy's point is that you can't double dip and take a deduction twice.
While we're writing about inventory, if 2003 is the first year for your
ceramics business, I would certainly consider whether your business is
"independent artists, writers and performers" business code 711510. As a
ceramic artist there is an exception to the rule that you need to maintain
inventory of unsold work, unfinished work, or materials used in the creation
of the art. This makes your tax life much easier.
Now if you feel compelled as an artist to show inventory on your tax return,
and you qualify as a small business, you can elect the cash basis of
accounting. Most of us file our personal tax returns using the cash basis of
accounting, and we are familiar with the general concept that if we don't
spend the money (or put the charge on our credit card) we don't get to
deduct it, and if we don't receive the income we don't have to include it on
our tax return.
My advice in general for ALL first year businesses is to consult an
experienced CPA/tax preparer to get a basic education before you file your
first tax return. You may not be aware that you are making elections and
choices when you file that first return. You want someone who will explain
things to you in a way that you can understand the choices you are making.
IMHO Turbo Tax and Kiplingers may do a decent job preparing a tax return,
but they don't explain the ramifications of choices you are making, or
necessarily explain that there may be some choices on that first return.
The short version is that if you are contemplating how to value your ending
inventory in your own business creating the items you sell, you may not need
to value it at all. Most of the discussion of inventory value refers to
items you have purchased as a wholesaler for resale or to large
manufacturers, and that kind of reading is very technical and usually
applies to much larger businesses. As a US taxpayer it is to your advantage
to not have to maintain inventory for tax purposes, because ending inventory
dollars are not a deduction on your tax return.
I had no problems with Steve Slatin's discussion of ending inventory and
inventory vs. supply. He explained things clearly IMHO.
And as usual, this is intended to be a general discussion, and should not be
construed as my giving tax advice for your specific situation. Your mileage
BTW it is not too late to set up your self employed 401(k) profit sharing
plan, for ultimate control of your retirement contribution, if your Schedule
C business has no other employees than your spouse and you expect net income
for 2003. However it must be done by December 31st, although contributions
are not due until the due date of filing your return.
Bonnie Hellman, CPA in PA & CO
----- Original Message -----
From: "Rudy Tucker"
Sent: Wednesday, December 24, 2003 8:01 AM
Subject: Re: Year End Inventory question
> Earl is correct but it is even worse than that. If you itemize your
> materials you are not allowed to deduct them a second time as a donation.
> essence, no deduction for any part of the donation. I found out during an
> audit several years ago.
> ----- Original Message -----
> From: "Bruce Girrell"
> Sent: Tuesday, December 23, 2003 11:10 AM
> Subject: Re: Year End Inventory question
> > Earl Krueger wrote:
> > > In other words, the labor is worth nothing???
> > Exactly right. Ask your tax person (or check the archives). The
> > again, is if you are a C corp. In other words, if American Standard
> > a bunch of sanitary ware to a housing project, then they can claim value
> > that includes labor, etc. But if you were to make a donation of ceramic
> > works - sinks perhaps - to the same project, you could claim only the
> > of the materials.
> > Bruce "Come to think of it, Maria didn't pay anything for her clay. She
> > didn't use glazes. And the cow dung for firing didn't cost her anything.
> > I'll take that one over there for free, thank you very much" Girrell
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