Taking Care of Business

There are two ways to approach the business of donating to a charity. This should always be done with an eye on the possibility of being audited sometime in  the future. Auditors like really clean and simple equations. It makes their jobs easier; and if they have an easier job, you will have a smoother audit.

 Both the artist and the charity face a number of advantages and disadvantages to each method of donation.

The outright donation

 The advantages to the artist: outright donations enable an artist to help and be useful, to have a positive impact on  one's community, to support a cause one believes in, and possibly create a CV  entry. The disadvantages: the value of the artwork is nebulous and unclear, and  the work may be sold for less than its retail value. The advantages for the charity:  they have a community member supporting their cause, and they have an item that will raise funds to help achieve their goals. The disadvantages: they have a one-sided relationship with the artist. Tax implications: If a tax receipt is  given for an outright donation, artists are obligated to enter into their records a sale  of equal value to the tax receipt. Taxes must be paid on this amount as well. For example, if the artwork is $1000, and the artist receives a tax receipt of $1000, the entry on their books will be $1000 plus applicable sales taxes (i.e., GST/PST). If the artwork is valued at $1000 and they receive a tax receipt of $500, the entry on their books will be $500 plus sales taxes. These taxes must still be paid by the  artist to the government.

The outright purchase

 The advantages to the artist: outright purchases enable them to help, be useful, to have a positive impact in the community, to support a cause one believes in. The artist has a sale on record, and  the work is not devalued. There are also no negative feelings, such as being taken advantage of; it provides valuable income for that month; and there are no  misgivings regarding the value of the artwork.  There are happy auditors and happy artists. The advantages for the charity:  they have a community member actively supporting their cause, they have plenty  of available items that will raise funds, they can recoup 50% of their cost right away from a clean donation. They also have a two-way relationship with the artist ­ the charity supporting the artist and the artist supporting the charity. Additionally there is no ambiguity to the fact that the charity respects the artist's work, the value of the donation is absolutely clear, and there are happy auditors and happy directors. The disadvantages for the charity: there is an initial outlay of funds. Tax implications: if, for example, the charity purchases the artwork outright for $1000 (plus taxes), and the artist  immediately gives them back $500 (50% of the value), then when the non-profit  association uses a silent auction for the artwork as a method of raising funds, the  non-profit will register a reserve price on the silent auction of $500. The artist receives a clean sale on their books, the non-profit organization registers a clean donation of $500 from the artist; plus, if the artwork is sold for even the reserve price, they  have their investment of $500 plus the artist's cash donation of $500. They will  have helped a member of their community, and that member will have helped them.

In five years, when the auditor comes calling, all the amounts on the books  are clear and precise and substantiated. Numbers in, numbers out - all on a piece  of paper that allows minute tracking.

Did you know

• As an artist and business person, I prefer the outright purchase
• so does my accountant!