Social Media Experts Auction and Pesky Charity Tax Rules
Jennifer Leggio is auctioning off the services of five social media experts on eBay to help support the Leukemia and Lymphoma Society. It’s not exactly a new approach to fundraising for charity, but it does break a bit of new ground in that it is the first time I can recall social media experts being the focus of such an effort.
First, kudos to Jennifer and the five experts (Chris Brogan, Joseph Jaffe, Geoff Livingston, Aaron Strout, and Greg Verdino). It certainly seems to be a worthy cause and anytime members of the community engage to take part in charitable endeavors, it is admirable.
As someone who has participated in both sides of charity auctions before, I do have a couple of concerns about some of the specifics here, however. (Please note that some of what will follow may sound like tax advice, but I am not a tax professional and therefore you should not rely on anything I say for anything other than the opinions/observations that they are.)
First, it should be made clear to bidders that the full amount of their bid is not tax deductible, contrary to the impression one may get from reading the materials. I have always been advised that I can only deduct the amount in excess of the fair market value received at a charity auction. In other words, if something is valued at $1,000 and I bid $1,200, I can only deduct $200.
And therein lies the rub. These experts have naturally pegged the value of their services as considerable. This is common in charity auctions, as those who put themselves or their products up for bid want to appear to be as generous as possible. In this case, where the experts themselves accrue some marketing benefit from merely being out there (and let’s be honest, that’s always part of the charity auction process), I suspect that many of them have pegged the value at the high end of what they might be able to get in the real world for their services.
Now understand that I am not saying that any of these five fine gentleman — all of whom I respect — has fudged their numbers. In fact, I can readily believe that all have received such sums for the services offered. But is it the typical compensation they receive?
When bidding at a charity auction, there can be several motivations driving the amount of the bid. But two important ones to consider in this context are (1) am I getting a deal? or (2) how much can I deduct? Remember that the tax deduction essentially reduces the amount of capital you are committing, thus enabling you to bid higher than you might otherwise.
In short, I encourage you to consider bidding on the services of these experts to help Jennifer’s fundraising efforts. In fact, I am considering doing so myself. At the same time, I would encourage Jennifer and the experts to clarify the real tax deductible component of any bid so that donors may bid with their eyes open.
Nice food for thought post Chip. I’d love to hear from a tax expert to confirm your suspicions on the tax implications of bidding. Specifically, if each of the experts gives a range for their value, what value would the IRS look to as the fair market value (and thus non-taxable)? Full disclosure: I work with one of the experts up for auction (Aaron Strout).
Jim | @jstorerj
Chip – great post and thanks for the plug. It will be interesting to see how this turns out.
Good point about the charitable/tax deductible portion of the services. One of the tricky things that I’m sure Jennifer had to face in setting this up is making the value of Chris, Joe, Geoff, Greg and me seem as high as possible (less for our egos and more to drive up the price of what people are willing to pay) while allowing for some tax benefit. Either way, I’ll be sure to point Jennifer to this post so that she can chime in.
Best,
Aaron | @astrout
Hi Chip,
First of all, thanks for writing this. The great part about the fundraiser is that if you read the fine print, I say on each auction page:
“While PayPal is accepted for payment, it is *highly* recommended that payments be made directly to Team in Training through the official, authorized fundraising page. Payments made through this method will go directly to Team in Training and a receipt showing your tax-deductible donation will be immediately emailed.”
The PayPal option is only on the post to abide by eBay’s policies and eBay is primarily being used to manage the auction (and I have written permission from eBay to use it this way and accept final payment through the fundraising site). So if someone wins the auction for say, $5000, they go to http://pages.teamintraining.org/sj/nikesf08/mediaphyter to make the payment and their entire donation is then tax deductible. They will receive an automatic receipt for the full amount. I did clear this with my accountant as well.
You bring up great points. I appreciate you bringing them up and I was remiss not to explain more clearly within the blog itself. And thank you again for your support!
OH, as for the bill rates, I went either with a range for Chris and Greg and with Jaffe we went on the low end for his usual bill rate for such an engagement.
Aaron- I agree it is a doubled-edged sword when setting fair market value.
Jennifer- I am surprised your accountant signed off on the tax deductibility of the full amount. Obviously, it is his expert conclusion and that’s more than I can offer. That said, I would encourage any winning bidder (or prospective bidder for whom it is important) to consult their own tax professional to confirm that advice. Of course, the law precludes taxpayers from using professional advice as a defense, but that’s a topic for another rant! 🙂
Best of luck to all participants.
Chip – Yeah, I’ll go as far as to say that no one should take my accountant’s advice as gospel either. I think the loophole, according to him, is that since the donation will be made in process as a lump sum to TNT, it will be fine.
BUT I will add a note in the blog that advises people to check with their tax professionals to determine what could be deductible in this process versus not, just to make sure they are aware. There are different rules and guidelines that might apply to their CSR programs as well. Thanks for bringing this up. I’ll make the edit now.
I added this to each auction page and to the blog:
Be sure to consult with your tax professional re: charity auction laws; however any individual donations made through the fundraising page ARE tax deductible.