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I have spent 20 hours building a family member a website. While I am not actually sending them an invoice and having them pay it, I did spend billable time on it that I could had spent on paying clients. How would I create an invoice, and categorize it so that the time I spent is categorized as an expense?

So for example my hourly rate is $100, and I spent 20 hours, so I have $2,000 that I need to mark as an expense.

Any help would be greatly appreciated.

  • 18
    Your question doesn't make sense. Taken literally, the question consists of "How do I create an invoice and then not send it?" The answer is "Same way you create an invoice and send it, except without the sending part." If you want to know how to report it to the IRS, or enter in such-and-such accounting software, or something else, you should say so. And do you enter every hour you don't work as an expense? – Acccumulation Jul 6 '18 at 16:49
  • Same exact way you do it for a nonprofit when you donate part or all of your fee. – Harper Jul 8 '18 at 2:39
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    If you are an employee of your company, and are being paid a salary, your salary is already an expense for your company. The fact that a certain employee of your company spent time not producing revenue may merely be a fireable offence. – MineR Jul 8 '18 at 3:59
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Assuming you're in the US, you can't do that. The IRS doesn't value your time, they value your revenue and actual expenses.

For your personal record keeping you can call it whatever you want, but for tax-purposes time you give away is irrelevant.

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    If you don't charge them, you've also spent 1% of the year using your business equipment and premises for personal use, and should pro-rate your expenses and depreciation accordingly. – Rupert Morrish Jul 5 '18 at 21:19
  • They may be able to call this a business gift to the recipient. It would seem to be legitimate business use of the equipment, avoiding what @RupertMorrish says. Unfortunately, that gets you a whole $25 of expense. – user71659 Jul 5 '18 at 22:14
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    @RupertMorrish If I spend 20 hours/year using a company laptop for personal use, does my employer need to pro-rate the cost of the laptop and report it as income to me? – Zach Lipton Jul 5 '18 at 23:41
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    Expenses are money that you spent. Your cost of your own labor is zero because you don't have to pay any money for it. The same would be true if a customer didn't pay your for something. You would incur a loss of only your actual expenses of doing work for that customer, not the money the customer didn't pay you which you simply wouldn't earn. – David Schwartz Jul 6 '18 at 1:19
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    @DavidSchwartz That's your cost as an individual. If your business is set up to pay you, or an employee, a salary, then the business incurs the salary cost as an expense. Additionally, the business should assign overhead cost to the activity, which becomes an expense. – user71659 Jul 6 '18 at 5:10
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Years ago I did some free work for a non-profit and I asked my accountant if I could deduct that effort as an expense. He explained why I couldn't like this:

If you want to deduct it, then invoice them at your regular price, and after they pay you, donate the exact amount back to their charity. Then you can deduct the full amount, but, of course you'll also declare that exact amount as income, so it's a 100% wash. But at least this way your total revenue will be more accurate, if you happen to care about that.

I didn't care about revenue (and even if I did I wouldn't have wanted to ask the charity to go through the trouble of cutting a check), but I did want to track it, so I created an invoice with a line item discount for the full amount. The customer never saw the invoice and it didn't help me financially, but it enabled me to see gross receipts as a separate number from revenue, which may be useful for budgeting purposes, particularly if you are turning customers away due to lack of resources.

  • I assume your accountant billed you for this piece of advice, so I would take the "total wash" with a grain of salt... – Stephan Kolassa Jul 6 '18 at 19:17
  • @StephanKolassa - That would be funny, but he's on retainer. ;) – TTT Jul 6 '18 at 19:19
  • @TTT - Dang, I already laughed on company time. – Don Branson Jul 6 '18 at 21:32
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    @fectin You forgot to subtract the appreciation in the value of your time. If you paid $0 for your time but it had a value of $X, you have a taxable gain of $X. You cannot donate your time at a value of $X for tax purposes until you recognize that value for tax purposes. You can then claim a taxable donation of $X if you really did donate your time. The +$X in appreciation and the -$X in donation will cancel out and, again, it's a total wash. – David Schwartz Jul 9 '18 at 6:57
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    @fectin Say I buy something for $1 and donate it to a charity with an agreed and reasonable value of $10. I have to recognize a $9 taxable gain in the item before I can claim a $10 deduction for donating it. The same would be true of labor bought for $0 if labor was treated the same way as everything else. – David Schwartz Jul 9 '18 at 6:58
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There is no expense, there is just no income. You pay no income tax because you were not paid.

If you should try to deduct any cost (like office rent, electricity etc.) you might get into trouble because the whole affair was something that you did privately, not as part of your business, so deducting any expenses as business expenses might be tax evasion.

The fact that you didn't actually write an invoice, didn't ask them to pay, didn't go to court when the invoice wasn't paid, shows quite clearly that his wasn't business.

  • it was part of my business. it was not a private affair. i used my business equipment, my business staff, my business electric, my business air conditioning, my business internet, and my business knowledge to do the work for them. how does that change your response? – Zach Smith Jul 11 '18 at 2:54
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You can handel this situation like a promotion that you would offer to your clients.

You can give him a gift card (or pretend to send him) and then print an invoice.

You can then categorise the billable time as you do normaly (an income). You should then deduce the amount of the gift card as an expense (like a discount) into a promotion or a gift to family category.

The gift card could have any value. It could be the money that you would have charge him (2000$), an hourly gift (20 hours) or a free product (1 free website).

In the end, like @ttt say, your revenue would be more acurate and you have a trace of it in your expenses. I would add that your asset do not change with this transaction.

  • i would not be able to "pretend" to give them a gift card because i would have to show a receipt for purchasing it. what am i missing here? – Zach Smith Jul 11 '18 at 2:52
  • You can make a promotion and give him the card freely. If you want to pretend to give him, just print a card and keep it! – Jarvis Jul 11 '18 at 2:59

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