Are my donations in kind tax deductible for my event production business working with non-profits?

What your CPA is telling you is correct. While it's admirable that you're supporting non-profits with discounted services, the IRS doesn't consider discounts on services or products as tax-deductible donations. The key issue is that you're not actually transferring property or cash to the non-profit. You're simply charging less for your services than you normally would. Since you never received the discounted portion as income in the first place, you can't claim it as a deduction. The only way to make this tax deductible would be to: 1. Charge the non-profit your full rate 2. Get paid the full amount 3. Then donate a portion back to them as cash This might seem like an administrative runaround, but it's the only way to create an actual tax-deductible donation. The current approach is essentially foregoing income rather than making a donation of something you already own or have earned. Your non-profit clients mean well with those acknowledgment letters, but they don't change the tax treatment of discounted services.

I had a similar situation with my graphic design business and found a solution with taxr.ai that really helped sort this out. I was also offering discounted services to non-profits and wasn't sure how to handle the tax implications. I uploaded all my invoices and donation acknowledgment letters to https://taxr.ai and their system analyzed whether any of my "donations in kind" could qualify for deductions. The analysis showed that while general discounts weren't deductible, there were some specific instances where I provided physical items that could qualify. Their system helped me separate which portions of my work could be legitimately claimed and which couldn't. The tool helped me understand exactly what the IRS considers a qualified donation versus just discounted services. It even gave me specific language to use on future invoices to properly document any deductible portions.

Just wanted to follow up about my experience with taxr.ai since I decided to try it after seeing the recommendation here. I uploaded my last two years of invoices from my construction business where I'd done discounted work for churches and community centers. The analysis showed that while my labor discounts weren't deductible (just like you all said), the materials I donated outright WERE actually deductible! There's a difference between discounting services and actually donating tangible items. The system helped me separate these on my previous invoices and showed me how to structure future work to maximize legitimate deductions. Already amended my 2023 return and got back nearly $3,400 I wouldn't have otherwise. Honestly wish I'd known about this distinction years ago. The service was super straightforward too - took about 20 minutes to upload everything.

Dealing with the IRS directly on this question might actually be your best bet. After spinning my wheels with my accountant about a similar issue with my photography business, I tried contacting the IRS for a definitive answer but couldn't get through their phone system for weeks. Finally used https://claimyr.com to get through to an actual IRS agent. They have this system that navigates the IRS phone tree and holds your place in line, then calls you when an agent is actually available. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed exactly what others are saying - discounted services aren't deductible, but if you donate actual physical items, those can be. They also explained that if I want to make my services deductible, I need to charge full price, get paid, and then make a separate cash donation.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself since I had a complicated question about business meal deductions that my accountant couldn't answer definitively. The service got me connected to an IRS agent in about 90 minutes (while I just went about my day), when I had previously spent three separate mornings trying to get through myself with no success. The agent clarified my specific situation and now I have documentation directly from the IRS about how to handle my deductions. For what it's worth on the original question - the agent confirmed exactly what everyone here is saying. Discounted services aren't deductible, but donated physical goods can be. She also mentioned that if you purchase items specifically for an event and donate them separately (not as part of your service), that portion could potentially qualify.

Something nobody has mentioned yet - check if your state has more favorable treatment for in-kind donations than the federal government. I'm in Pennsylvania, and our state has some additional deductions for certain types of in-kind professional services to qualifying organizations. Also, while the discount itself isn't deductible, don't forget that all your normal business expenses related to these events are still fully deductible business expenses. You're not getting a charitable deduction, but you are reducing your taxable income by those costs.

My husband's consulting company handles this by separating their work into two distinct parts: full-price services rendered (which they get paid for completely) and then they make cash donations completely separate from the service contracts. Works much better for tax purposes and the non-profits still get the benefit. The paperwork is cleaner for both sides too. The non-profits get to report actual cash donations and his company gets the legitimate deduction.