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  From: Alan Kennington <akenning@topology.org>
  To  : LinuxSA <linuxsa@linuxsa.org.au>
  Date: Wed, 20 Jun 2001 15:20:39 +0930

tax deductions for non-compulsary software payments

This is a question about a method of doing
open software business. 

Here's an example.

Someone writes some really neat software.
I use the software and feel grateful and want to
help fund the continued development of that software.
I voluntarily send X dollars to the author.
At the end of the year I think about how much
I've paid for software in the year, for the purposes
of tax deductions.
But... there's no invoice or receipt for the X dollars.
Pretty clearly, I can't claim a deduction.
So at a marginal tax rate of R%, I have really paid
the equivalent of X/((100-R)%) for the software payment.
If the author had put a price on the software, I would
have received a tax deduction of X * R%.
So the author has actually done me a bad turn by making
the software free!

Question 1:
Looking at it from the point of view of the software
user, how can I get a tax deduction without hassling
the author too much?

Question 2:
If I were an author, how could I make software free,
and yet also put a price on it so that people could
send me "donations" and get their tax deduction?

It seems to me that the way tax deductions are worked out
is on the assumption of _compulsary_ payment.
If I should ever be audited, how could explain that
the payment was optional? That would mean that I was paying
more than the market price for the item, which was 0 dollars.
If the payment is optional, then the payment could be
seen as a gift, especially if the amount of the payment is
at the whim of the payer.

Has anyone claimed a tax deduction on a gift to, say,
the Free Software Foundation?
I once wanted to send them some money, but their web pages are
so horribly organised, I just gave up after about 1 hour of
trying to understand how to do it.

Most software authors would not be registered charities, I assume.

The issue must arise in the case of shareware, which first appeared
on the scene around about 1985, I think.

The kinds of things I'd like to know are:

Should the payer send the number X to the author, and the author
sends an invoice for X dollars, and the payer sends off X dollars?

Or should the payer send X dollars, and the author sends receipt
(and possibly an invoice) for X dollars?

It's difficult to see how to do this without hassle to the author.

If there was a standard modus operandi for these things, I think
that it would help the open source movement along a bit.
That's my opinion anyway....

Cheers,
Alan Kennington.

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