Scenario: A consultant provides services-in-kind (let's say valued at
$x) to a charitable organization. There are two options for how this can be accounted in a manner that creates a paper trail for both parties:
- Consultant issues a receipt with a line item for
$xthat also includes a discount line item in the amount of
$x. As a result the total of the invoice is $0 and no payment needs to change hands. This will result in the consultant not having any income to report, but the value of the work contributed has been documented and can be reported on later.
- Parties do what's commonly referred to as a "cheque exchange". The consultant issues a receipt for
$x, receives full payment from organization, then makes a donation back to the organization in the amount of
$xand receives a tax receipt in the amount of
Assuming the donation would be fully deductible, aside from reinforcing the value of the donation in the mind of the recipient, are there any advantages to the latter? It results in more administrative burden for both parties (writing cheques, issuing tax receipt, recording donation, claiming on tax returns) and yet despite this appears to be a fairly common practice.