Recently several artists put together an exhibition to sell their artwork to raise money for a local charity. I proposed that the buyer make out a check to the charity for the full amount of an artwork, and the charity then pay a percentage to the artist. We agreed to a 50% split. The charity would then acknowledge the other 50% to the buyer as a deduction.
If instead the artist wanted to claim that 50% deduction, can the charity acknowledge it as a deduction for the artist? Is there a standard method used in these circumstances?
This is a noble effort and the charity may do very well. Unfortunately, it is not a good vehicle for charitable contribution deductions for either the purchasers or the artists.
A purchaser of the art is permitted to claim a charitable contribution deduction only to the extent that the purchaser pays more than the fair market value of the work. Like a charity auction, if the purchaser pays fair market value or less, the IRS takes the position that there is no contribution at all since the purchaser is getting something of equal or greater value for the payment.
On the other hand, an artist is not entitled to take a fair market value contribution deduction for a gift of his or her own art. With a complete gift, the artist is permitted to deduct only the cost of the materials, such as the canvas, paint and frame, and not the value of the service of turning those materials into something more valuable. If you pay the artist 50% (or any other percentage) of the sale price, the IRS will treat that transaction as a sale of the work for the amount you paid and will tax the payment as income to the artist, just as it would tax a sale to any other purchaser. But at least the artist will have cash with which to pay the tax and will still have some left over.
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