26 July 2002

Tax options for citizen scientists

A summary of a presentation given at the First Annual Citizen Science Conference, 28-29 June 2002, Philadelphia

Richard A. Fragale, CPA, MT. - partner
Heffler, radetich & saitta, llp.
1515 market street
Philadelphia, pa 19102

Tel: 215-665-8870 ext 5052
Email: rfragale@heffler.com
Web: www.heffler.com

 

Charitable contributions:

An individual can deduct contributions to a charitable organization but the value of services contributed is not deductible.

No deduction is allowable under section 170 for a contribution of services.

However, unreimbursed expenditures made incident to the rendition of services are deductible.

Example, the cost of a uniform without general utilty is deductible as well as out of pocket transportation expenses necessarily incurred in performing donated services.

Also reasonable expenses for meals and lodging incurred while away from home in the course of performing donated services.

 

Hobby loss rules:

Deductions are allowed for expenses incurred in a trade or business under section 162. No deductions are allowed for activities, which are primarily carried on as a sport, hobby or recreation.

In other words in order to be deductible the activity must be carried on with the intent of making a profit. In deteriming whether such an objective exists it may be sufficient that there is a small chance of making a large profit.

 

Relevant factors:

1. Manner in, which the taxpayer carries on the activty. The fact that taxpayer keeps accurate records and carries on the activity in a business like manner indicate the activity is engaged in for a profit.
2. The expertise of the taxpayer or his advisors: preparation for the activities by extensive study of its accepted business, economic or scientific practices.
3. The time and effort expended by the taxpayer in carrying on the activity.
4. The success of the taxpayer in carrying on similar activities in the past.

Example:

A chemist employed by a large chemical compnay is engaged in a wide variety of basic research projects for his employer. He does no work in the development of plastics for his employer but he has always been personally interested in their development. Therefore he has outfitted a workshop at his own expense, which he uses to experiment in the field.

He has patented several developments at his own expense but has yet to realize any income. He conducts his research on a regular systematic basis and makes extensive efforts to market his developments. Although there is a small chance that he will develop any new plastics, the return from any such development would be substantial. Under this fact pattern he will be found to be engaged in experimental activites for a profit and his expenses deductible.