Today, a question arose in our Art Business Academy Q&A session regarding the tax implications of donating artwork to charities or non-profits. An artist who donated a large painting to a new hospital was curious about whether they could deduct the value of their contribution on their taxes. Unfortunately, the rules around this topic are quite restrictive and often misunderstood.
The Short Answer: Artists Can’t Deduct the Full Value
The straightforward answer is that artists cannot deduct the fair market value of the artwork they donate. According to IRS rules, artists are only allowed to deduct the cost of materials used to create the piece. This is because the IRS distinguishes between the creators of the art and those who purchase it.
The History Behind the Rule
There is a story, perhaps apocryphal, suggesting that this limitation dates back to a change in tax law from 1969 because of President Richard Nixon. Before this change, artists could deduct the full market value of their donated works. The rule was reportedly altered after Nixon received a large tax deduction for donating his manuscripts. Congress decided to restrict such deductions to the cost of materials for creators, while buyers of art could still deduct the fair market value upon donation.
Practical Implications for Artists
For artists, this means the tax benefit of donating artwork is minimal. You can only deduct what you spent on canvas, paint, and other materials—not the hours of labor or the creative value added to the piece. Moreover, if you’ve already deducted these material costs as business expenses, you can’t deduct them again when donating the artwork.
Other Benefits of Donating Art
While the tax benefits may be lacking, donating art can still bring other advantages. Contributing to a charitable cause can generate goodwill, enhance your reputation, and increase exposure for your work. Having your artwork displayed in prominent locations, like the main lobby of a hospital, can attract new audiences and potential buyers. Plus, there’s always the intangible benefit of knowing you’ve made a positive impact on your community—call it good karma!
Advocacy and Potential Changes
Organizations like Americans for the Arts are actively advocating for changes in this tax rule. They argue that allowing artists to deduct the fair market value of their donated works would encourage more donations, benefiting cultural institutions and the public. For example, prior to 1969, the Museum of Modern Art in New York received significantly more donations from artists than in the years following the rule change.
Efforts such as the Artist-Museum Partnership Act have been introduced in Congress multiple times, aiming to restore the ability for artists to take fair-market value deductions. However, these bills have yet to pass.
Conclusion
While donating artwork to charities and non-profits is a generous and community-minded act, artists should be aware that current tax laws do not offer significant financial incentives for such donations. It’s always wise to consult with a CPA to understand the full implications for your specific situation. For more detailed information on this topic, you can refer to resources provided by Susan Lee, CFP and Americans for the Arts.
Always consult with your accountant when it comes to tax advice, as individual circumstances can vary widely. By staying informed and involved in advocacy efforts, artists can contribute to potential changes that might one day allow for fairer tax deductions on donated artwork.
I used to work for the IRS as an auditor .The tax laws concerning art work is confusing. When an artist sell artwork the full selling price is taxable income. Of course art supply’s are deductible if an only if you can prove you are an active working, selling your work. Making a profit in at least one year in five. Living wages. That’s the kicker. Living wages. Not many artists fall in that category. But in donating artwork, you can only deduct it cost to create it. Now on the patron side, he /she will be able to donate the fair market value, regardless of what it was paid for. (That includes the cost of getting it valued) kind of one sided. There are other rules and regs but these are the most prominent. Like I said, seems kind of lopsided.
I used to donate to causes I believed in…and discovered that a couple of my clients would wait until my work came up at auction and buy the pieces for way below my market price. (And brag to me) I never got any clients from it despite protestations it would create great public awareness for my work. Now, with the expanded allowance for donations in the basic standardized deduction, it will probably never count. I do still donate – rarely – and only to very, very special causes. I support other causes in other ways (time and talent but not treasure), and even with that I’m having to be very careful. Time is not a wonderful donation if it takes away from creative efforts.
The underlying principle behind these laws and public awareness in general is that art is a hobby, no matter who is doing it. Why should Aunt Nelda get anything for doing what she pleases?
I am grateful that our real collectors know the difference.
It’s not so much that all art is viewed as a “hobby” as most of what people are willing to pay is due to prestige and provenance than the inherent quality of the work. How else can an original ______ fetch millions, while an “In the style of” so good it takes laboratory analysis to prove it’s not a lost original be lucky to fetch five figures?
3rd party donor can deduct. That’s not us.
I worked for charity helping to acquire art for their big fundraisers. As an artist I explained that we usually only got prints donated because of the laws. I convinced them to split the proceeds with the artist for original works donated. They agreed to try it and my painting brought $7500 in the live auction. The 50/50 split brought them much more than they would have made off a print or small original so they continued the policy. The artists involved were then much more likely to give us better pieces therefore bringing in more money. Was a win/win. Another of my paintings also brought $7500 at another event and because it was the high selling piece at the auction I won a $10,000 commission. So yes charity events can be lucrative. Unfortunately those events are no longer happening but I believe it’s worth trying with the charity of your choice.
There is still a charity in my area that allows a 50/50 split as an option but push for 100% donation. I always select 50/50, so at least my cost and part of my labor are covered . I believe most of the artist, who must not care that their costs are not covered, go with 100% donation. The venue uses different color silent auction sheets for 100 versus 50% donations. I have sold work through the auction, but not as frequently as others who donate 100%. Frustrating but I do continue to donate because the nonprofit supports the arts in many great ways.
Why not trade artwork with another artist, and then at some future point donate that other artists work at market value? Sure, maybe you report as income the material cost of the other artist, but that would seem to be the value assigned by the tax code to the original work. I think the hardest part of this is to find like=valued artists. Obvs I’m not a tax attorney though.
Interesting perspective on donating art : https://www.huffpost.com/entry/charity-art-auctions_b_872953/amp
I once heard another way around this problem. It was to ask the charity to purchase your work at market value and then donate the cash from the sale back to the organization. They would still at that point have all of their money plus your piece available for the auction and you would have made a cash donation which, it would seem, would be deductible.
It’s an interesting suggestion, Alexis, but since you would have to report the income from the sale, wouldn’t the deduction for the cash donation then just cancel out the income? You would be right back where you started with no real tax benefit.
On the flip side, you can buy a horse in its prime, use it until it’s ready to die, then donate it to a non-profit (various disabled riders groups) when it’s probably only got a year or two left and no one’s going to pay anywhere close to its “prime” value, and get to deduct what you paid for it.
But back on subject: how do you get an impartial valuation? Some of those Antiques Roadshow appraisals of “artist unknown” works wouldn’t cover (even farmer’s) minimum wage by someone painting them today.