DJGold

DJ Teddy Bear · Posted: Fri Nov 05, 2004 1:19 pm Post subject: Free vs. Charging One Dollar

TheBartman47, from another thread wrote: Just curious about the $1 charge, is that for tax reasons or something for charging some amount vs. doing it free?
The $1 charge, on a signed contract, makes you a contracted employee / sub-contractor, etc. Whatever you want to call it. You don't even need to collect the buck, as long as they sign for it.

This puts you in the same status as if it were any other private event regarding injury/liability and music royalties. Same for a bridal show where you are paying to be there. Do anything for free, and you're opening up a whole can of worms.

Tax reasons? No. Ask your accountant. If you normally charge $800, and do a charity gig for $300, or even free, you cannot claim the difference as a donation/deduction. If they pay you $800, and you donate any or all of it back to them, then you can claim the amount you donated back. But there is no advantage to you of doing that. There could be an advantage to the organization, but not to you.

CJ Greiner · Posted: Sun Nov 07, 2004 10:06 am Post subject: Re: Free vs charging one dollar

I've never understood how some people think that charging the full amount then donating it to a charity is any different than just donating it.

Perhaps someone could explain that.

----------
Are you saying that if you charge ($1) that it's contractually or legally different? How does that affect you: Is it for insurance purposes, or something else?

DJ Teddy Bear · Posted: Sun Nov 07, 2004 4:08 pm Post subject: Re: Free vs charging one dollar

CJ -
I agree that there is no difference between providing free or discounted service vs charging and donating. There "could" be a difference to the organization, but not to the person doing the free/discounted work.

The $1 is for insurance/litigation reasons. If an incident leads to a lawsuit, being hired help, even for $1, puts you in a subordinate position, whereas doing a the gig for free, you can be a lead target in a lawsuit. A lawyer can better explain this.

An additional benefit of the $1 charge is music royalties. If you're doing the gig for free, then you may be subject to BMI/ASCAP fees by inadvertently making your show a public performance within a private event. And if its a public event, then you're definitely responsible. Charging $1 means, if its a public event, the organization that hired you would be responsible, not you.

CJ Greiner · Posted: Sun Nov 07, 2004 8:15 pm Post subject: Re: Free vs charging one dollar

DJ Teddy Bear wrote: CJ -
I agree that there is no difference between providing free or discounted service vs charging and donating. There "could" be a difference to the organization, but not to the person doing the free/discounted work.

I've heard the theory of getting paid then donating the full amount before -- I was hoping that someone would come along and explain why they think that there's a difference between that method, and the method of simply donating the time (and charging $1 or more.)

DJBusyB · Joined: July 20th, 2004 Posts: 22 Location: Knoxville, TN

CJ Greiner wrote: I've never understood how some people think that charging the full amount then donating it to a charity is any different than just donating it.

Perhaps someone could explain that.

I believe it is 'on the books'. If you 'donate' your services, you can deduct NOTHING from your business except actual expenses. You can't deduct the 'normal' fee you would charge for this event. You can only deduct gas/mileage, food, props you purchased specefically for this event, ie - actual incurred expenses.

However (and I recommend you contacting your Entertainment CPA) I believe if you charge the organizers full (or discounted) price, then cut them a check out of your business account (even if it is the full amount), you have contributed to a charity.

Don't let me impersonate a licensed CPA, but this is what I have learned in the past few years.

Brian

CJ Greiner · Posted: Mon Nov 08, 2004 10:36 pm Post subject: Re: Free vs charging one dollar

Brian -- that's what I've heard too.

The problem is this:

If you accept money for them... let's say $500, then that's $500 of income on the books.

Then you donate the $500 back to them and that's a $500 deduction...

You end up right back where you started: $0.

-----
If you donate your services for $1 then that's $1 of income -- and no deduction... which means you make $1 more than the person that charges the full amount then donates it all back.
-----

Either way, you deduct the expenses such as transportation, food, materials, etc.

--> So where does the benefit of charging the full amount then donating it all back come in?

DJ Teddy Bear · Posted: Tue Nov 09, 2004 9:11 am Post subject: Re: Free vs charging one dollar

CJ -
As you have noted, there is no benefit to charge & donate - at least not to the DJ. There can be a benefit to the organization. Is THAT the benefit you keep asking about? If so, here it is:

I'm a member of a local Lions club. I did a gig for them where I donated my fee back. The event was a fund-raiser. The proceeds of the event pay for the event's expenses, so my check came out of the fund-raiser's proceeds. Whatever is left over after all the event's expenses, can only be used for charity work and cannot be used by the organization for ordinary expenses.

However, as a club member, I was able to ear-mark my 'donation' to the club's "general expenses" fund.

Essentially, I helped them move money around.

davergr · Posted: Sun Nov 14, 2004 10:57 am Post subject: Re: Free vs charging one dollar

The way I was told a few years ago, if you donate your services to a NoN-profit organization, get a letter from them stating what the event was and how much your services would have cost. Then you can use that as a deduction on yur taxes just as if you donated a car to the group to sell. You can deduct the book value of the car as a donation.

When and org pays you and you give it back as a donation everybodys net is 0.
Try this article for some help http://www.irs.gov/newsroom/article/0,,id=118196,00.html

It's not exact but it is a start.

DJ Teddy Bear · Posted: Sun Nov 14, 2004 12:22 pm Post subject: Re: Free vs charging one dollar

The way you described the 'get a letter' thing is the way we all have been told it works. But that's just not the case. Anyone who told you that is not an experienced accountant.

The reason that a donated car can be deducted is because it is an asset that the charity can convert it to cash and use.

I checked the page you indicated. It made reference to IRS Publication 526, which I downloaded. In that publiction is the following example:
Quote: Q: I do volunteer work 6 hours a week in the office of a qualified organization. The receptionist is paid $6 an hour to do the same work I do. Can I deduct $36 a week for my time?
A: No, you cannot deduct the value of your time or services.
This example is no different that saying you donated a gig worth $x vs your ability to do a gig for the same price for a regular client.

CJ Greiner · Posted: Sun Nov 14, 2004 12:29 pm Post subject: Re: Free vs charging one dollar

DJ Teddy Bear -- you're quite right. Any "time" we donate is non-deductible. We can only deduct expenses that we can show receipts for.

In fact... the donated car thing is changing too.

Until now, you could write off the "fair-market value" of the car when you donated it.

BUT: coming soon (January?) the law will change and then you'll only be able to write off what the charity actually gets at the auction!

You'll only be able to write off the value of the asset that the charity was really able to convert to cash and use. :shock:

DJ Iron Mike · Posted: Mon Nov 22, 2004 3:34 pm Post subject: Re: Free vs. Charging One Dollar

I have seen other guys do this too. They told me because you log it as seperate transactions.

Diana McKinney · Posted: Thu Dec 30, 2004 10:56 am Post subject: Free versus charging one dollar

The number one reason why you should just donate your services instead of charging full price and then "danating" the money back to the organization? TAXES!

Let's say you charge $1000.00 for an event. You have just made $1000.00 in income. You subtract $100.00 in expenses. You now have a taxable income of $900.00. This is all business related. You write a business check for $1000.00 to the organization. Unless you are a corporation the donation will not be listed as a income deductible item on your schedule C. It will be a donation on your 1040, 1040EZ, whatever you use. Therefore you will pay taxes on the $900.00 income. And I don't mean regular taxes, I mean a little something called Social Security taxes. Now you may want to have that additional amount going into your Social Security account. Up to you. Just know what is happening.

Okay, you donate your services instead. You are able to deduct $100 in expenses. You are now done with the whole thing. No additional taxes. No additional paperwork for you or the non-profit organization. P.S. You might want to include the non-profit's IRS issued status number in your paperwork should anyone question wether or not an organization is really a non-profit.

DJ Teddy Bear · Posted: Thu Dec 30, 2004 12:42 pm Post subject:

Diana -
When I read the first paragraph, I wanted to ask if you read any of the above posts.

But reading your entire post, you make an interesting point.

Charging $x then donating $x results in a net income of zero, so no income tax. But you have added $x to your gross income, which is what you pay SS tax upon. Interesting twist to the conversation.

Although SS taxes are based upon gross income, they are capped. They are a % of the gross, but have a maximum yearly payment.

Therefore, if your paid gigs plus day job exceeds the SS maximum, then you're back to not having any tax problems or advantages with free gigs.

Diana McKinney · Posted: Thu Dec 30, 2004 5:14 pm Post subject: free vs charging one dollar

DJing is my only job. I don't even make close to the SS max. (Insert big sigh here :( ).

To get back to the original topic of the post. My insurance company has never specified that I need to charge a fee in order for my insurance to be in effect, only that I have a signed contract. Anybody have more info on this?

CJ Greiner · Posted: Thu Dec 30, 2004 6:54 pm Post subject: Re: free vs charging one dollar

Diana McKinney wrote: DJ'ing is my only job. I don't even make close to the SS max. (Insert big sigh here :( ).

To get back to the original topic of the post. My insurance company has never specified that I need to charge a fee in order for my insurance to be in effect, only that I have a signed contract. Anybody have more info on this?

The signed contract is so you can prove to the insurance companies -- and the courts if necessary -- that you were in fact performing your services as a business, and that the client did in fact want you there performing your services.

The fee -- or lack of one -- is completely up to you and your book-keeper.

DJ Teddy Bear · Posted: Thu Dec 30, 2004 11:04 pm Post subject:

Yeah, you're probably covered from your insurance company, even if it was a free gig without a contract.

But, as I mentioned earlier, a contract for as low as $1 puts you in a subordinate legal position. That's a position you would want to be in if someone decides to sue for something.

djmc · Posted: Thu Jun 16, 2005 12:24 pm Post subject:

I've got one coming up where I'm going to require a signed contract........even though I'm not charging them.

DJ Teddy Bear · Posted: Thu Jun 16, 2005 12:58 pm Post subject:

I've been re-examining the part where I say you don't even have to collect the dollar.

It is better to charge a dollar and have it paid to you by the organization's check. Even if you donate the dollar back (or, for that matter, charge full price and donate the full price back). If any situation were to arise where you wanted to prove you were being paid, even only a dollar, having a photocopy would be extremely beneficial.

(FYI - Every check I receive as a retainer gets photocopied.)

DJ Iron Mike · Posted: Thu Jun 16, 2005 5:26 pm Post subject: Re: Free vs. Charging One Dollar

DJMC wrote:
I've got one coming up where I'm going to require a signed contract........even though I'm not charging them.

I think Matt is onto something because even if it is a freebie, you have some sort of written agreement and some sort of proof to show for it.
I doubt most people would fool with a contract if it was a freebie but on the otherhand, regardless if it is a freebie or not, you can still be held liable in anything that could potentially come up.

djdonny · Posted: Sun Jun 19, 2005 10:30 am Post subject:

You guys have left out the main reason why I ask for payment first and then donate back...

I've had more than one occasion where I've offered to donate services, and held the date, only to have the event cancelled (or some other similar change of plans). I don't like to be jacked around like that. So, I charge as per my usual contract (retainer to hold date, payment in full one month prior) and then write a donation check at the event.