Question from a client who owns a bar: we have a party room that we rent out to groups for $500. If a not-for-profit wants to rent the room, and we give them a discount, can we deduct the discount as a charitable contribution? If so, what documentation do we need?
Short Answer
This is not a charitable contribution, so there’s no documentation needed.
Long Answer
Your “deduction” in this case comes from being able to report less income than usual by giving the discount. This is the same concept as a landlord giving a rent reduction to a renter.
EXAMPLE: Normally you charge $500 for rental of the party room. Let’s say you rent it out for $500 and that’s your only transaction for the year. Your tax return will show $500 of income.
Now let’s say instead that you rent it to this group for $200 and that’s your only transaction for the year. Your tax return will show $200 of income.
END RESULT: you do get a “deduction,” in a way, because you’re reporting $300 less of income than you usually would.
So it’s not that you get no benefit from it, it’s just that the benefit comes in the form of reporting less income, instead of taking a deduction.