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If I offer a discount to a charity for services rendered, I can't claim the discount as a donation for tax purposes, right?
But, can I charge them my full rate, and then donate the money I didn't want back to them? So, if my normal rate is $100/hr, but I wanted to offer the charity a 25% off discount, can I instead charge the charity $100/hr and then write them a check for $25/hr, and claim that check as a tax-deductible donation?
Sure you can, but it doesn't help. The extra income from charging full price exactly offsets your deduction.
Let's say you work for 10 hours. If you give them a 25% discount, you receive $750 of income (which is taxable to you), and you don't get any deduction for the discount. So your taxable income went up $750.
On the other hand, if you charge them full price and donate back 25%, you receive $1000 in taxable income, and make a donation of $250 which you can deduct. Again, the net effect on your taxable income is that it increased by $750.
So as far as taxes are concerned, there is no real difference between the two. Your scheme doesn't confer any advantage.
What you wish you could do is give them a 25% discount on the services (so you receive income of $750), and deduct that $250 discount. Then the net effect on your taxable income would be an increase of only $500, and so your taxes would be lower than in the other cases. But this is precisely what the IRS won't let you do.
Say you charge a discounted rate of $75. That adds $75 to your taxable income.
Say you charge a full rate of $100 and take a $25 charity tax deduction. That nets out to adding $75 to your taxable income, same outcome, except the $25 is in peril, due to the complexities of the tax law. For instance:
Charity deductions give no tax benefit at all until you achieve $12,000 of itemized deductions (from donations and mortgage interest, certain state taxes, certain medical expenses etc.) Deem that unfair (we at charities certainly do!) but the fact is, it's because you already get a $12,000 standard deduction as a 'gimme'.*
If you're a huge donor (I am on certain years, thanks DAF), you can only deduct 50% of income (with carryforwards, yay). Your donation-back reduces that. Doing it direct adds $75 to AGI ($37.50 to deduction limit), so you can deduct donations of $37.50 to other charities. The donation-back adds $100 to AGI (adding $50 to donation limit) except $25 of that is spoken for by the donation-back, leaving only $25 left.
So I consider the maneuver to be a "lose lose" unless you have some bizarre tax reason for wanting to do that.
Further, such an arrangement is likely to draw scrutiny from the IRS.
IRS waives taxes on value which you create by your own DIY labor*. Say you mow your own lawn at an annualized cost of $100/year (lawnmower depreciaton and fuel) instead of $1100/year to hire it done. You created $1000 of value "from the sweat of your brow". IRS's policy is not to treat that as income, and thus, not to tax that.
Thus, when you are a craftsman, IRS views the sale of service as the taxable event, not the crafting itself.
Similarly, when you do volunteer work for a charity, "the sweat of your brow" does not create a cash value of interest to the IRS in either direction.
Really, when you are a craftsman offering services, and you do services for a charity, that is considered volunteer labor.
* This used to only be about $5000, but Trump was keen on a postcard-sized tax form, so they folded the adult "personal exemption" into the standard deduction, removing 2 lines on the 1040 form. Meaning most Americans who itemized before, no longer itemized - they didn't have $12,000 of deductions! Schedule A goes away for them (so mission accomplished there)... but so does the tax deductibility of charitable contributions, which was a knife in the heart of charities.
