Best of the ISP-Lists

Donating Bandwidth for Tax Benefits

As tax time approaches, businesses are looking for all the tax writeoffs they can find. Members of the ISP-Colo list discuss what benefits ISPs can gain from charitable donations—and what to avoid.

[March 1, 2002]

On the ISP-Colo list in February, RR asked,

"When you donate servers and bandwidth, what do you get out of it? Are you able to get a tax write-off?"

Some respondents said it's really all about the goodwill:

[JD warned] "It's mostly just a feel-good kinda thing…"

[TO agreed] "And it does feel good, I have to admit. Our senior admin is a FreeBSD ports maintainer, and while I complain about the time involved, I think it's because I'm jealous."

Others disagreed about the specific ways you might be able to get a tax write-off:

[EK suggested] "It can be written off as a donation, based on your list prices."

[PS added] "You can only write off donations to non-profit organizations. Donating a server to a club does not count unless they are classified non-profit by the IRS."

[AD countered] "My CPA says you can only write off the actual cost to you, not the value of it if they had to purchase it. I wish it was the other way around, because we donate about 750 domains to non-profits: that would be a $225,000 write-off!"

[AD advised] "Have a CPA give you an actual determination of what you can claim. If you take too much, the IRS will be very unkind. On the other hand, you do want to take all you are entitled to."

DU offered one way to ensure non-profit status for your donations:

"As a branch of the Electronic Frontier Foundation, I help maintain the California Community Colocation Project, a legitimate 501(c)(3) corporation. All business with us is considered a tax write-off, which makes it very nice for big companies to give us bandwidth and colo. It saves them money in the long run, since our usage is so low."

WD countered that all the effort may not actually be worth it:

"You won't really get any additional tax benefit from writing off your service donations. Since the IRS won't allow you to expense things twice and you probably already deduct your operating costs (electric bills, bandwidth bills, payroll, etc.) to arrive at your net profit number, you can't deduct those expenses again. I think the best you could do is re-categorize them from operating expenses to charity donation expenses, but the tax and net income effect would be the same. In fact, you may be at risk if you re-categorize them as charity donations, as the IRS may want to examine those for validity. In any case, be sure to consult a competent CPA."

— End