USA Accounting for free labor received

[GoodBooking808]

Hi there,

My bookkeeping client wants to account for services that she received for free. One of her yoga teachers taught a class and did not want to get paid and does not want to get paid in the future also, but my client wants to instead donate what the teacher will not accept. What should I be recording? I was thinking to do a journal entry to debit labor expense and credit a donations owed account. Thank you.

 

[vpryce]

Excellent that your client received this service "Libre Gratis." The first thing I would recommend is to have something in writing to this effect, that would spell out the arrangement.

Now that we have the agreement portion covered, the entry would be as follows:

Dr. Revenue - Others $ 2,500
Cr. Professional Fees exp $2,500

This produces a zero financial impact for financial statement purposes. However, if you later donate the said $2,500 to a Qualified Charity IRC 26 code section 170. The following will take place for tax purposes.

1. The income from the students who attended the class is regular income $3,500.
2. The instructor will receive not direct tax benefit for this donation.
3. And the tax-deductible portion of the donation is limited to $1,000.

I hope this helps.