Performing work pro bono for underprivileged clients or charitable organizations can be a great boon to your local community. Many companies and professionals see it as an additional investment in advertising, as pro bono work helps get the word out about your business. Unfortunately, professional work provided free of charge isn't rewarded very well by the IRS on tax day. If the pro bono work was traded for other services, you might actually be taxed for the value of services received. There are some tax deductions that a professional providing pro bono work may qualify for.
No Tax Deduction
The Internal Revenue Service does not allow professionals performing pro bono work for any client to count the freely offered services toward a tax deduction. This is laid out in the IRS's Publication 526, "Charitable Contributions," which states that a taxpayer cannot treat "the value of [his] time and services" as a deductible charitable contribution. This applies regardless of whether the pro bono work was donated to an organization considered a charity under IRS rules.
A professional who incurs any out-of-pocket expenses during the course of performing pro bono work may be able to write those expenses off as tax deductible. The IRS states that some out-of-pocket expenses incurred while giving services are tax deductible as long as those amounts are unreimbursed, are directly connected to the services rendered and are not related to personal, living or family expenses. Expenses can include travel, reasonable meal and lodging costs, as well as the costs of materials purchased to provide pro bono work.
Free professional services which are performed as an equitable trade for another professional's services are actually treated as taxable income by the IRS; this is considered by the Internal Revenue Service to be bartering income. The fair market value of the goods or services received in return for your pro bono work must be reported on Schedule C of the IRS Form 1040 for personal income tax returns. Charges incurred for providing this work are still deductible as business expenses.
Tax deductions for corporate pro bono work can be much greater than the tax deductions earned by individual professionals because of the larger scale involved. A corporation that pays its employees to complete pro bono work for which the corporation is not paid can write off that payroll, as the IRS treats it as an out-of-pocket expense. However, S corporations and limited liability companies already treat payroll as a deductible expense, so these corporate structures reap no additional benefits.
- "Publication 526, Charitable Contributions"; Department of the Treasury, Internal Revenue Service; January 2011
- IRS.gov: Topics 420 -- Bartering Income; March 2011
- American Bar Association. "ABA Model Rule 6.1." Accessed April 13, 2020.
- Roger Williams University School of Law. "The History of Lawyer Pro Bono Services." Accessed April 13, 2020.
- Financial Planning Association. "Welcome to Your Professional Home," Pages 1 and 3. Accessed April 13, 2020.
- Financial Planning Association. "Pro Bono Financial Planning." Accessed April 13, 2020.
- Forbes. "Pro Bono Meets the Public Company." Accessed April 13, 2020.
- Financial Advisor Magazine. "Financial Advisors Rally To Help Americans Cope With Coronavirus Crisis." Accessed August 16, 2020.