Why Can’t Artists Deduct Donated Artworks from Their Taxes?

Artists are constantly being promised exposure, glory, connections, gratitude, and other intangible benefits in exchange for giving their artwork away for free. The truth is, the biggest outcome for artists usually ends up having more opportunities to work for free. But what about at the end of the year? Can artists deduct the artwork they’ve donated for a write-off on their taxes? The answer, sadly, is no.

“The long and short is not great news for artists on this topic,” said Alyssa Fox, an accountant for Fox Tax, a tax firm that specializes in working with artists, in an email to Hyperallergic. “The deduction for a person’s own work is limited to their basis in the work.” Basically, if an artist donates a piece to a nonprofit organization or a museum, she can only deduct the costs that went into the piece, which would include materials as well as paying someone else, such as a framer or printer. “They cannot value their own time,” Fox said. Even if an artist spends 100 hours on a painting she donates, those are all hours that are valued at zero in the eyes of the taxman.

We can blame this sorry state of affairs on Richard Nixon, according to Susan Lee of Freelance Taxation. Apparently, the former president tried to write off over a million dollars for donating his own manuscripts to a library, and Congress quickly responded by creating a law that states the creator of a piece of work can only deduct the cost of materials.

For this article, we spoke with Minneapolis-based artists to get firsthand accounts of their experiences with this particular tax rule — though it applies to all artists doing their federal taxes in the US. We also spoke with an accountant who works with artists, arts nonprofit folks, and a tax lawyer, to help us understand the issue.

Spoken-word artist Bao Phi found out the hard way. When he first started touring over a decade ago, Phi would often be approached by institutions to perform for their events for free. He figured he could just write it off on his taxes. “My accountant was like, you can’t do that,” Phis told Hyperallergic. “I was really surprised. It’s not like I made any less of an effort. It was still all my time — all my preparation. I gave the same show.”

It struck the poet as unfair, considering that when he does get paid to do a performance, he gets taxed. “I get that they have to have some regulation — otherwise you’d do a bunch of free shows, but to me it seems like an inequitable system,” he said. Wouldn’t it be better if the IRS just limited how much an artist can donate? These days, Phi is a lot more hesitant to donate, especially if it’s for a wealthier institution. “A lot of people don’t think beyond that piece of art. They aren’t thinking of the work,” he said.

In addition to artists having little tax incentive for donating artwork, promises of receiving exposure and networking turn out to be not that great either. Painter Caitlin Karolczak, who is based out of Minneapolis and New York, said she’s donated thousands of dollars worth of paintings over the last decade to various galleries and nonprofits, and has seen little in return.

“Usually it does not do a service to the artist,” she said. The only way it will do a service to you is if it’s a good bullet on your resume, or a good curator.” Sometimes Karolczak will get a free ticket to a gala, which might be worth a couple hundred dollars, but even that is much less inexpensive than her work’s value. “I’ve donated a $500 painting for an $80 ticket,” she said. Through all the years, she’s never had a follow-up sale from a donation, and finally had to cut off certain nonprofit galleries that would only show her work when it was a donation, not as part of its regular programing, which happened all too regularly. “With my career level, I want a little more,” she said.

SooVAC (Soo Visual Arts Center), a Minneapolis art gallery, has in the past asked artists to donate works for its annual silent auction fundraiser, which is a common practice among nonprofits. But this year, SooVAC gave artists the option of having a percentage of the winning bid, according to Executive Director Carolyn Payne. So, for any given artwork that is sold at the auction, the artist would keep a percentage, with the rest going to the nonprofit gallery. That ensures that the artists can at least get some pay for the time it took to create the work.

Artists don’t have much better luck donating to museums, either. Stephanie K. Donley, the Major Gifts Manager for the Minneapolis Institute of Art (Mia), said the museum is more likely to receive a donation from a private collection rather than an artist, but artists do donate work occasionally. From a legal standpoint, she said, gifts of art come down to what kind of property it is, and how the recipient will be using it. When a private collector donates a piece of art, it’s considered a capital gains property (and therefore deductible), but when an artist donates, the work is considered ordinary income, so deductions are limited to the materials.

Whoever the donor is, the museum has that person sign a deed of gift, which turns over the property to the museum. That deed gives a description of what is given to the museum, but doesn’t contain an evaluation. “It’s more for donor recognition purposes,” Donley said. So while an artist might not be able to write off a piece of art she donated, the museum wants to recognize artists at their giving level.

Scott Artley, the executive director of Patrick’s Cabaret, a performing arts center in Minneapolis, said that at a recent fundraiser, he asked donating artists to set a value for their work, so the organization could know how to price a starting bid for the silent auction. Artists could self-report any deductible value in their tax returns, and “if they want a receipt I will give it to them, but have them fill out the deductible value,” he said. “This is one of those infuriating tax inequities that unfairly assumes art and artists have less value because it’s so much more difficult to quantify that value.”

Meanwhile, if an artist dies, “that’s a totally different set of rules,” said James Lamm, an Attorney for Gray Plant Mooty, a Minneapolis Law Firm. First of all, the artist has to bequeath not only the physical piece of art but also the copyright to her heir in the will (which an artist would need to do no matter what state she lives in). The estate, however, does get to deduct the fair market value of the work, according to accountant Alyssa Fox. “This is why museums are often filled with the works of artists who have passed on,” she said.

Even without the tax break, artists still might consider donating their works. Artist Frank Gaard has donated art to both Mia and The Walker Art Center, for instance, and both Karolczak and Phi say they still will donate for a cause they really believe in. Karolczak recently donated a piece to the I AM Kindness Gallery, a one-night event that allows people to “buy” works of art by promising to volunteer or do some other act of kindness for the common good. Karolczak thinks the idea is “kind of neat” and made a work especially for the show. “They try to make the artists at least feel that they are thankful for what you are doing.”