(Art Credit: Andrea Hernandez)
Like many freelancers who are good at what they do, you likely get approached by not-for-profit organizations (or friends who work for them) to provide pro bono services. That is, you do work and provide services without charge. This is a great way to gain exposure in a market as well as create some goodwill, however, it is important to understand that it really has very little benefit to your tax situation.
Unlike actual charitable contributions and some expenses related to performing pro bono work, such as mileage driven and supplies used in the performance of the volunteer tasks, any work you do in and of itself is not tax-deductible. This is the same rule as volunteer hours, which are generally not tax-deductible either.
For the expenses you can deduct (see the IRS guidance below), you must itemize your deductions on Schedule A of your federal 1040 tax return for them to be eligible and this practice is usually only favorable if the amount would be greater than the standard deduction which is now $12,950 for individuals and $25,900 for married taxpayers filing jointly.
To qualify, all pro bono deductions must meet two IRS rules:
- They must be incurred as a requirement to perform the service for the organization.
- They must primarily benefit the charity and not the taxpayer.
Any potential deductions including meals eaten with donors, printing, events and related items must be considered necessary to provide or perform the service that directly benefited the charity.
The fine line between freelance pro services and pro bono work.
The Internal Revenue Service (IRS) also distinguishes between the pro bono provision of professional services and volunteer work. In both of these scenarios, you can't deduct the standard fee for the time you donate, but you can deduct qualified expenses that you incur to provide those services unless they benefit you more than the charity you are using them for. An example of this would be the cost of equipment you continue to use, such as a printer.
Claiming pro bono deductions related to your freelance work
Any tax break you claim for pro bono work must be a legitimate charitable contribution, which would usually be claimed as an itemized deduction. That being said, you can't gain any tax benefit from claiming them unless you forgo the standard deduction. The Tax Cuts and Jobs Act doubled standard deductions beginning in 2018.
This means that many freelancers may find that the deduction is larger than the total of their itemized deductions given that you are limited to claiming overall charitable contributions of no more than 60% of your adjusted gross income (AGI).
Another limitation is that you can only make donations to eligible charities such as churches, government entities, and any organization that is listed as qualifying on the IRS website.
Work-related expenses that are deductible for pro bono gigs
The IRS clearly indicates that you can't deduct the value of your services or your time that you spend helping others. While you can’t deduct your professional time for pro-bono work as a taxable item, you can deduct tangible expenses such as paying a contractor to build a website as part of the services you provide. Travel expenses related to your pro bono work are also deductible at the same rate as the IRS standard mileage rate.
Rigorous record-keeping is critical for claiming pro bono freelance expenses
Just like any other expense or charitable deduction, you must keep detailed records of receipts to substantiate freelance pro bono work for tax purposes, especially to reduce the risk of the IRS disclaiming them.
While the tax situation may not move in your favor with pro bono work, that should not be the sole factor in your decision as to whether to support organizations you care about with your skills and services. It is an important reminder of the need to be aware of the tax implications of your freelance business activities and how they impact your total financial picture