According to the Internal Revenue Code Section 170 titled “Charitable, etc., contributions and gifts”, where property is donated, the deduction must exclude the “amount of gain which would not have been long-term capital gain.” That is to say, one can only deduct a contribution that is a long-term capital gain, for example, property that has been owned for over a year and is then donated. In short, an artist, if donating directly to a foundation, cannot receive a tax deduction for an artwork he or she has created. Therefore, if an artist has already deducted materials under Schedule C, they cannot list them again as a charitable expense for a donated artwork.
However, the IRS does not allow “double-dipping,”. With these provisions, artists only pay taxes on their profit, not their total revenue. It should be noted that nontraditional materials, whether they be bottle caps or barbed wire, can also be deducted, although the time and physical labor put into constructing an artwork cannot be for a charcoal sketch that took hours to make, an artist can only deduct the charcoal and paper costs. Since the IRS considers this artwork to be a self-created asset, artists can claim materials needed to produce their original creative work, such as paints, brushes, canvases and frames, as business-related expenses on their federal tax returns ( IRS Form 1040 Schedule C). artists who can demonstrate having gained a profit from their artworks-can generally deduct the cost of materials used to create an artwork from their taxable income as a business expense rather than a charitable donation. Intended as a general guide (and not as a checklist), this article focuses on these IRS publications, highlighting pertinent sections of the tax code for artists, collectors, and donors interested in giving charitable donations of artworks. For a recent guide on the subject of art donations as deductibles please see IRS Publication 526 (2018), Charitable Contributions, which summarizes the Internal Revenue Code Section 170: Charitable, etc., contributions and gifts. Due to this broad reform, publications pertaining to tax code are now outdated if not obsolete (including this previous publication by the Center on the topic). The Tax Cuts and Jobs Act of 2017 brought about large changes to all areas of taxation, deductibles included-as a reminder, if something is tax deductible it means that its value can be subtracted from the taxpayer’s legally taxable income. In the Summer 2019, the Center for Art Law hosted its first charitable auction, during which it considered: how can artists and donors receive tax benefits for donating artworks to a non-profit organization? As it turns out, the answer is a bit lengthier than one might expect.
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