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(photo by Lendingmemo/Flickr)

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.

Bao Phi (photo by Simi Kang) (click to enlarge)

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.

Caitlin Karolczak, “The Light” (2016), a work the artist donated to the I AM Kindness Gallery show (image courtesy the artist)

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.”

Sheila Regan

Sheila Regan is a Minneapolis-based journalist and critic. She has written for Bomb, Artnet News, The Lily, Broadly, American Theatre, and contributes dance reviews for the Star Tribune.

26 replies on “Why Can’t Artists Deduct Donated Artworks from Their Taxes?”

  1. No one that volunteers can deduct the value of their time. Do lawyers doing pro bono work get to deduct the lost hourly billing rate? What about a doctor who volunteers with Doctors without Borders? Or works in a free clinic for the poor? Or a construction worker that volunteers for Habitat for Humanity? Artists are being treated the same as everyone else.

    1. Everybody is treated equally shitty by the IRS.
      Just as shitty as artists and company treat Nixon.
      “We can blame this sorry state of affairs on Richard Nixon…”
      you can do so because you’re a jerk.
      (not you CS, the OP)
      When society accepts hand outs or even demands them, the author’s fees for their time could be calculated at half value or less, but it doesn’t have to be zero.

      1. There is an interesting article on the timing of the tax reform act of 1969 and Nixon, and and the donation of the material. Previous presidents had benefited from the tax deduction (Truman, Eisenhower) so it was just not Nixon. Matthew G. Brown in Archival Issues, 2001

  2. How do right-wing conspiracy-theory trolls end up on threads like this? Is there a grant aimed at fostering art-site diversity? Just wondering…..

      1. Well, there are myriad reports online referencing the Nixon transgression, from Forbes to googlenews, including this well documented case below — which does, however, A) also mention President Johnson pulling a similar stunt, and B) note that with Nixon it was a deduction of $576.000, not over a million.

        The detailed and footnoted reference, along with URL, is below. Now……… where is your own fact-checking? Did the grant not cover that? Wah-wah.

        http://www.jasonptax.com/uploads/3/0/1/4/3014253/the_charitable_contribution_deduction_for_individuals_-_to_be_or_not_to_be.pdf

        “Over the next 25 years, the charitable deduction limits were updated from time to time:

        to 20 percent of adjusted gross income in 1952, to 30 percent in 1954 for certain charities, and finally to the current limit of 50 percent as part of the Tax Reform Act of 1969 (Clotfelter, 1985).

        One other provision of the Act of 1969, a provision still in effect today, was the limit imposed on donations of ordinary income property.25 This limit essentially limits the deduction for donations of self-created works of art, manuscripts, letters, and memorandums to the donor’s basis,26 which in most cases is the cost of materials (a nominal amount). This provision was enacted partly in response to the abuses of Presidents Lyndon Johnson and Richard Nixon in deducting inflated fair market values for the donations of certain letters and papers written while they held office (Dean, 2003).

        In Nixon’s case, his deduction of $576,000 on his 1969 tax return for donated vice- presidential papers was one of many issues that raised red flags with outside observers, which curiously had escaped suspicion with the IRS. In fact, the IRS was accused of giving Nixon special treatment for not initially questioning his large deduction. Eventually, after two IRS audits and an investigation by the Joint Committee on Taxation, Nixon’s deduction was reduced by $482,018.”

        1. “Did the grant not cover that?”
          No, it did’t, but again, it should.
          (that’s what I said, but you don’t check what you “respond” to)

          Thank you for the researched info though!

          1. Well, I certainly responded more than well enough to your complaint about the author’s fact-checking. Maybe next time, save someone the trouble and check the facts yourself before you accuse other people of fabrication. At least when I am wrong I am big enough to own up to it.

        2. Nixon had given papers and taken a tax deduction in 1968 which did not have problems as had previous presidents such as Truman. What got Nixon into serious trouble was that he had not legally transferred the papers (ie deed, delivery and such) before the tax law change of 1969, of which he was aware. Nixon’s staff also got a backdated appraisal — they were basically inept and did not get their paperwork right. Truman Eisenhower and Johnson all benefited from the tax deductions.

  3. I thought I had this figured out when it occurred to me that I could donate another artists’ work and take the deduction. We could barter for each others art and then donate. But then it looked like the IRS would want me to pay taxes on the receipt of the other artist’s work, the analogy being that you would have to pay tax on, say, a used car your folks gave you.
    Wait! That’s why my Great Uncle made my Grandmother buy a car from him for $10 instead of giving it to her.
    Maybe my barter plan could still work if we sold each other the work for $10 each and then donated it for its actual retail value?

    1. If you sell someone a $2,000 painting for $10 on the condition they sell you a $2,000 for $10, it’s still a barter transaction, it just has a small cash component.

    1. Nixon still took the tax break. He backdated the paperwork. So, yeah. It was Nixon’s fault. Interestingly it has been the Republicans ever since that vote down the change in the law or simply table it. It is a still brought up every year by Sen Patrick Leahy as the Artist-Museum Partnership Act. Amo Houghton (R) sponsored it in the past and admonished his fellow GOP for voting it down.

  4. This largely makes sense to me.

    Let’s say you make a painting with a market value of $2,000. You’ve created $2,000 of value for yourself that you would be taxed on if realized in the market. However, by donating that painting, you forgo the obligation to pay tax on the value you created.

    Let’s say that instead of creating a painting, I make $2,000 mowing lawns. Normally, I’d owe taxes on those earnings, but if I donate the money I don’t have to pay taxes on it.

    These situations seems more or less symmetric. In both cases, the laborer creates $2,000 worth of value and doesn’t have to pay taxes on it because of their charitable donation.

    1. The person getting paid for mowing the lawn and deciding to donate the money is two separate acts. If you volunteered to mow the lawn as part of a Habitat for Humanity program instead of taking paying customer you would not be able to deduct the $2,000 that you would have made with paying customers. It is as simple as that. When giving away one’s work to a not for profit, whether an artist or a doctor or gardener, there is no deduction for the lost income.

      1. But it’s all just meaningless shuffling. Either way, the net effect is that you mow a lawn and don’t owe anything to Uncle Sam. There’s no difference between monetizing the labor in the market and donating the proceeds and donating the labor directly.

        An artist is free to sell their painting, donate the proceeds, and get their tax write-off. They just won’t be any better off than donating the painting directly. That’s as it should be.

        1. Well, tax deductions are a shuffle in a way. But the issue of the article is that it is somehow wrong that artists do not get the tax deduction and my point was that no person gets to deduct the value of their time when they do something charitable. People that volunteer at hospitals, with the poor, literacy programs, and so on do not receive any deductions for their time. And in terms of practicalities, how would this work if everyone got the deduction? A doctor volunteering at a national disaster doing triage, should the doctor deduct those hours at work at what Medicaid would pay? Medicare? What an uninsured patient would pay?

          1. Agreed. I think we’re both arguing that artists aren’t actually disadvantaged over others.

            I also agree that valuing donated artwork (or the time that went into making it) would be incredibly tricky. I’m sure the tax man wouldn’t be thrilled if you simply clear out your unsold inventory every December and mark your tax liability down to 0.

          2. Yes we are agreeing with each other; the article makes it sound like artist are penalized over others that donate their skills and time and that is just not the case. And the issue of someone creating a work just for a deduction or as you said donating the works that did not sell is an issue. People were donating all sorts of clothing to charities, things that were is such bad shape that no one would wear them, and now the clothes are supposed to be in good condition, There were also abuses in people donating cars that were a wreck and deducting the highest blue book value.

  5. Artists always seem to be outraged by this, but in fact they are not being singled out. The value of donated labor is not deductible by ANYONE. The rationale is simple, if you can follow a little logic.

    Donating my labor is the same as you paying me, and my giving the money back, right? So if I do that, I get taxed on the income when you pay me, and then I deduct the cash donation. So the two cancel out, and there it NO EFFECT on my taxes.

    And that’s why donations of labor are not deductible.

  6. The biggest takeaway from this article, for me, are the following two quotes which validate the idea that free work leads nowhere:

    “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.”

    “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.”

  7. Artist-Museum Partnership Act. Sponsored and introduced every year by Sen Patrick Leahy (D-VT). Tabled every year the GOP is in the majority. Voted down by most of the the GOP every year is makes it out of committee and allowed on the floor when the Democrats are in the majority. So the right wing conspiracy kooks on here need to own up to that shame.

  8. As an artist you can deduct the established fair market value of a piece of art that is donated to a charity to be sold for charitable purposes, or listed as an asset to the org. You can not deduct for time. It is difficult to establish the fair market value. Somethings you do out of the goodness of your heart. Forming partnerships with NPO’s can advance ones career in any field. https://www.irs.gov/pub/irs-pdf/p561.pdf

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