Business Expenses: Giving Away Services

[samclem]

Okay, this is just the opposite of retirement, but here goes: If I perform a service for a client/prospective without charge in order to build rapport and to demonstrate my services, can I deduct the value of those hours as a marketing expense on my taxes?

Any steers to other references would be appreciated, too.

Thanks

 

[youbet]

Edited to remove dumb guess which was probably wrong.....

 

[Martha]

Without looking anything up I would say no. Logically, (if that is at all relevant to the IRC), you would have to pay yourself for the services and then deduct that expense as a marketing expense. So it would be a wash anyway.

Over the years I have given away lots of time, but no deduction has resulted.

 

[tightasadrum]

It's sort of like me making repairs to investment rental property. I can work my fingers to the bone, but in the end the deductions for my time are zilch.

If I pay someone else to do the work, that can be decucted from the profit that I would otherwise pay taxes on. But if I pay myself to do the repairs, it's income. Two sides of the ledger, balances out to zero. IRS wins again.

 

[samclem]

Thanks all. It just seems like if I was selling handmade candies I could give away samples to develop a market and deduct their value (or maybe what I paid for them), so maybe there would be a similar treatment for services.

 

[igsoy]

I think the generality is that your time has no value to the IRS. If you can show that you have laid out money -- fine, deduct away, but if you have laid out your time -- worthless. This holds true for both business and charitable purposes.

 

[retiringby50]

You could deduct the value of the candy though. I have a direct sales business in which I hold "parties." At these parties, I have the clients do a demo with my products, so I'm giving away free products in hopes they will buy them. It comes out to about $1/person, but my accountant deducts that out. My time is worth nothing though, apparently.

 

[samclem]

You could deduct the value of the candy though. I have a direct sales business in which I hold "parties." At these parties, I have the clients do a demo with my products, so I'm giving away free products in hopes they will buy them. It comes out to about $1/person, but my accountant deducts that out. My time is worth nothing though, apparently.

That's what I'm understanding from the discussion so far. Say a barber had a track record of charging (and receiving) $10 per haircut, but moved a few doors down and gave away haircuts for a week in order to keep clients and develop new ones. My simple mind says maybe he could deduct the value of those haircuts (not technically his "pay", but the "value of the services rendered") as a marketing expense. Apparently not--you can only deduct the cost of the rent, electricity, and clipper-oil for those days (just as he'd already be deducting those costs if he'd charged for the haircuts). But if he had hired another barber to come in (or a stripper to perform in the lobby), he could deduct what he paid him/her.

 

[youbet]

Actually this kind of makes sense.......

Otherwise, this type of scenario would be common: A decorator would like to get $100 to paint a room. For his next customer, he quotes $400 for 2 rooms. The customer balks. He says, as a marketing promotion, how about $200 for one room and I'll do the other for free? The customer, thinking thats's $100/room says fine. The decorator does the 2 rooms, collects $200 and deducts $200 for the room he did free........and has a written quote to show that $200 is what he would have charged....

Too many ways to scam a system that lets you give your labor away and deduct it.

 

[samclem]

youbet,
I see your point.

Too bad it's like this (for me), since iI can demonstrate that there was no cost-shifting, etc: I've been paid a particular amount per hour for a service to a particular customer for several years, and I can document the hours I worked (without requesting pay) in order to gain work in a new business area.
Thanks.

 

[youbet]

Yeah, it is too bad.

Same kind of deal with charity work. DW is a retired Special Education teacher with a ton of credentials in dealing with autism, Downs and some other severe learning disorders. She does some limited work with a local school district for compensation. She also does some work for charity. You would think she could deduct the charity work at the rate she gets for it professionally. But no. All she can deduct is the milage rate for driving over to the facility.

This is the last year for the professional involvement. And likely any further charity work will be reduced or stopped. So, no consequence going forward.

 

[RetireeRobert]

If, as part of this marketing, you have some travel expenses and/or drive your business car, you can deduct the travel/lodging/meals necessary and/or the mileage on your business car. But nothing for your time.

 

[Nords]

My simple mind says maybe he could deduct the value of those haircuts (not technically his "pay", but the "value of the services rendered") as a marketing expense. Apparently not--you can only deduct the cost of the rent, electricity, and clipper-oil for those days (just as he'd already be deducting those costs if he'd charged for the haircuts).

Maybe that can be deducted through a different corporate structure (which I can never keep straight in my head) and that's the source of the confusion. It is an expense and its marketing costs can be used to offset revenues, but perhaps not in the type of corporate structure you're paying your taxes on. The IRS probably feels you're already adequately compensated by the structure and not inclined to give you the "extra" offset.

(or a stripper to perform in the lobby), he could deduct what he paid him/her.

If there's one thing the military has taught me, it's that the customer should pay for that service directly rather than having it show up on your invoice!