How to Calculate Value of Photos Donated to Charity Auctions?

[HowieShultz]

I donate photos to non-profits to auction for fund raisers. I was under the impression that the price that the photo went for at the auction would be the amount I could write off on my taxes for charitable contributions. My accountant is not convinced of this and told me to read through IRS publication 561. I looked through this publication and it does not address my situation. Does anyone have any suggestions on how I can find an answer to this question? I can always contact the IRS and ask them directly but I figured someone in this community might have some kind of experience in this area. Thanks for your help.

[Brett_D]

I assume your question is about U.S. federal law.  My understanding is that an artist may only deduct the value of the materials used to create the art, not the fair market value.  Otherwise it would be very easy for nearly every artist to artificially have no income, simply by donating enough of his or her own art work to charity.  If you google the concept you'll see lots of discussions of this, like at: http://robergtaxsolutions.com/2011/06/tax-tips-for-artists-why-you-might-not-want-to-donate-your-art/

[Slobodan Blagojevic]

I donate photos to non-profits to auction for fund raisers.

To help us answer your questions, we would need to know the following:

- how many photos you donate a year
- is this a relatively regular thing, i.e., donating each year, or a sporadic event
- are those photos a part of a limited edition (i.e., how unique your photos are)
- what is a typical price achieved in those auctions (for your photos) [because there are different IRS requirement for, say, amounts below $5,000 (no appraisal necessary) and above (appraisal needed)]
- do you otherwise sell your photography on a regular basis and at what price (relative to the price achieved in an auction for your photos), etc.

... I was under the impression that the price that the photo went for at the auction would be the amount I could write off on my taxes for charitable contributions. My accountant is not convinced of this and told me to read through IRS publication 561. I looked through this publication and it does not address my situation...

The Publication 561 does actually address your question, though doesn't answer it completely:

"... The price an item sold for in an auction may have been the result of a rigged sale or a mere bidding duel. The appraiser must analyze the reference material, and recognize and make adjustments for misleading entries. .."

This quote simply explains why an auction price may not necessarily be the best way to determine the fair market value (which, by the way, is the basic guiding principle in determining a donation value - replacement cost is just one of the factors in arriving at it)

As you can see, whenever it comes to IRS, the only 100% correct answer is: it depends

[PeterAit]

If you sell - actually sell, not just offer for sale - prints at a certain price, then I expect you are on pretty solid ground using that price as the donation value.

[Justan]

What you can do is to offer the print and take the verifiable fmv for it as a tax break. BTW, the IRS can reasonably require you to have an independent appraisal to verify the fmv. But you may get a tax break on the fmv. Of course, the IRS, largely at its own discretion, may disqualify or discount the fmv for in-kind donations.

In any event you can get another tax break for the purchase price if you buy the print back from the qualified non-profit entity. That way you’ll score 2x on one item.

After that you can sell the print again to someone else and recoup at least part of your purchase.

[Brett_D]

While I'm fairly sure that everyone above (except me) is wrong, the real answer can only be given to you by an accountant or tax lawyer.  I'm not sure why your accountant is telling you to read IRS publications.  Normally, the accountant is the one who tells the client how to do the accounting.  Perhaps you need a new accountant.

[Slobodan Blagojevic]

... Otherwise it would be very easy for nearly every artist to artificially have no income, simply by donating enough of his or her own art work to charity...

That, of course, is impossible.

The maximum you could reduce your (adjusted gross) income is 50%:

"... You can deduct up to 50 percent of your adjusted gross income for donations to certain organizations -- including most hospitals, churches and colleges -- that have been classified as "50 percent organizations" by the IRS. You may deduct up to 30 percent of your adjusted gross income for contributions to any tax-deductible organization, such as war veterans' associations, that are not classified as 50 percent organizations. If you donate capital gains property, your deduction limit might be as low as 20 percent..."

Read more: Charitable Deduction Limits | eHow.com http://www.ehow.com/about_7444568_charitable-deduction-limits.html#ixzz2DMW9GlQu

[Slobodan Blagojevic]

While I'm fairly sure that everyone above (except me) is wrong...

In fairness to you, your position is replicated numerous times on the web. They all say the same: only cost (of material) is deductible. However, my problem with that statement is that it is just that, a statement on the web. Everybody claims "the law says...," but I have yet to see a direct quotation from "the law" that says that. I am not saying it is not correct, just saying that I am used to get my information directly from the source, if possible.

... the real answer can only be given to you by an accountant or tax lawyer...

I agree with you 100% on that.

... I'm not sure why your accountant is telling you to read IRS publications.  Normally, the accountant is the one who tells the client how to do the accounting.  Perhaps you need a new accountant.

Maybe because it is not so clear-cut?

[jeremypayne]

I'm not sure why your accountant is telling you to read IRS publications. 

Because ... at the end of the day it is YOUR tax return and YOU are liable for its contents.

[AFairley]

Because ... at the end of the day it is YOUR tax return and YOU are liable for its contents.

Nope, crummy accountant, sorry.  A lay person has no business trying to interpret IRS regs.

[HowieShultz]

I appreciate all of the input.  It gives me a lot of food for thought as to what direction to go.  In defense of my accountant he told me to get the 561 publication to look through and he would circle back with me to go over it while he researched it further as he wanted to make sure I had at least a basic understanding of the issue.  From the replies and places you suggested I check it seems like the bottom line is that there is no black or white answer to this question because it depends on some other factors such as price it was sold for compared to the cost of materials, amount of photos I donate each year, what the fair market value is for the particular photo and how that is calculated, the dollar amount I donate per year etc. etc.  So this may be different for each person that gets involved in donating art based upon these factors.  After doing some preliminary research my accountant suggested that if we can not come up with a definitive answer it may be worth writing the IRS and asking for an opinion based upon what I plan to do.  So thanks again for the help.

[SecondFocus]

From Photo Attorney Carolyn Wright...

"...you may deduct the smaller amount of either the costs of the donated item (paper, ink, CD) or the fair market value of the property at the time of donation."

"Publication 526 specifically states that you cannot deduct the value of your time or services."

http://www.photoattorney.com/2006/07/deductions-for-donating-photography-to.html

[colinm]

As Carolyn Wright (via Ian) notes, you want Publication 526, not 561.

Specifically you probably want page 10 of the current (2011) Publication 526. As you're bound by the lower of FMV or cost/basis, FMV's not even going to come into the picture unless you're having prints handmade on white buffalo hide using panda blood.

[JohnCox123]

I donate annually to a local children's charity auction, it hasn't occurred to me to write it off but I always ask to know what my print sold for for information in setting a fair market value for my galley sales. You might look into that for finding FMV.

[jeremypayne]

Nope, crummy accountant, sorry.  A lay person has no business trying to interpret IRS regs.

Try and tell that to your auditor and tell me how that goes.

[Ellis Vener]

The accountants I have used have always told me that if I as the artist donate artwork that I created only the cost of materials that is deductible. Carolyn Wright (cited above) reads the law that way to.

[AFairley]

Try and tell that to your auditor and tell me how that goes.

I didn't say the lay person is not liable for what is in his return, he is, however it gets in there.  That's why (obviously) interpretation of the IRS regulations should be done by a professional.  As they say about another field full of arcane rules, "Only a fool has himself as his lawyer."

[Slobodan Blagojevic]

So I wrote to Carolyn Wright directly and asked for a specific reference in the law. She was kind enough to respond (kudos for that). Her response:

"It would be best for you to consult with a CPA on this issue for specific advice on your business."

Btw, my interest in this thread is a pure intellectual curiosity, although in my professional capacity (not photography-related though) I had a fair share of my own debates with our tax accountant, preparation of tax returns, and reading through IRS publications directly.

[Gary Brown]

In fairness to you, your position is replicated numerous times on the web. They all say the same: only cost (of material) is deductible. However, my problem with that statement is that it is just that, a statement on the web. Everybody claims "the law says...," but I have yet to see a direct quotation from "the law" that says that.

FWIW, see Pub 526 under “Inventory” (page 10), which seems like the situation that would apply to a photographer who sells his own photographs:

“If you contribute inventory (property that you sell in the course of your business), the amount you can claim as a contribution deduction is the smaller of its fair market value on the day you contributed it or its basis.” That basis is basically the cost of materials.

There's similar wording in the “Inventory” section of Pub 561:

“If you donate any inventory item to a charitable organization, the amount of your deductible contribution generally is the FMV of the item, minus any gain you would have realized if you had sold the item at its FMV on the date of the gift.” Which, likewise, works out to be the lesser of the FMV or your cost of materials.

[ternst]

One other note about all of this - if you are a photographer/artist in business then you probably have already taken the deduction for all of the materials you used to produce a work of art that is donated - i.e., you already wrote off the cost of the entire roll of paper, ink, printer, frames you buy, etc., so in the end you can't deduct ANY part of a donation since you already took the deduction on the materials when you first bought them - can't do that twice...