From WTAE Pittsburgh:
For 32 years, [Albert] Lexie has been examining his schedule each morning, like a doctor on the clock. But the longtime shoe shiner’s gift isn’t healing, it’s giving back. A shoe shine costs $5, but Lexie said customers have been generous with their tips since he started working at the hospital in 1981.No doubt about it. Mr. Lexie has quietly and consistly done something noble and great by turning over his tips to a worthwhile charity. However, this raises some very interesting tax implications. In particular, it is well-settled that amounts received as tips are "income" for income tax purposes and should be reported on a person's tax return. Now you would hope that the fact Mr. Lexie simply donated these funds to charity would absolve him of any tax liability for those tips, but that isn't necessarily the case. The reason why is that one's charitable donations are not always 100% deductible.
“Most of them give $6, some of them give $7,” Lexie told Channel 4 Action News anchor Wendy Bell.
And Lexie gives every cent of his tips back to the children.
“I think he does it because he loves the kids,” said Dr. Joseph Carcillo. “He's donated over a third of his lifetime salary to the Children’s Hospital Free Care Fund.”
The money goes to parents of sick children who can’t afford to pay medical costs.
“He's a philanthropist, is what he is,” said Carcillo. “He's an entrepreneur.”
Lexie has donated $200,000 to the cause, bringing in several hundred dollars a week.
In this case, it is likely that Mr. Lexie could only deduct these donated tips up to 50% of his adjusted gross income (and remember his AGI would include this tip income). If, for instance, his donated tips ever exceeded 50% of his AGI, then he would not be able to deduct the full amount of donated tips that year. While these excess donations can be rolled over for up to 5 years, it doesn't do Mr. Lexie much good if every year he is maxing out this deduction limitation. On a related not, it is unclear what documentation the hospital has provided Mr. Lexie each year that would enable him to substantiate these deductions, if ever questioned.
In all, Mr. Lexie has done a noble thing...let's just hope the IRS doesn't take notice.
