Volunteers Can Claim Charitable Deductions for Out-of-Pocket Expenses: It's Better to Give AND Receive
Thomson Reuters Tax Analyst Identifies Deductions for U.S. Taxpayers
“It’s fairly obvious that when taxpayers donate money or property to a charity they can claim a charitable contribution deduction on their personal income tax return,” said Tony DeChellis, senior tax analyst for Thomson Reuters. “But less obvious, and often overlooked, is the charitable contribution deduction allowed for certain out-of-pocket expenses incurred in connection with services performed for a charity.” The value of the services themselves is not deductible but related out-of-pocket expenses may be, explained DeChellis.
To claim a tax deduction for expenses incurred while performing charitable services certain substantiation requirements must be met and the amounts must be:
- Directly connected with the service,
- Expenses incurred only because of the services provided
- Not personal, living, or family expenses
Uniform and car expenses. The cost and upkeep of uniforms and car expenses are probably the most common out-of-pocket expenses. Only uniforms that must be worn for the charitable service and that are not suitable for everyday use qualify (for example, a Red Cross volunteer’s uniform). Car expenses include the cost of gas and oil (but not general repairs, maintenance, and insurance) directly related to using a car while providing charitable service or getting to and from the place the volunteer services are performed. Rather than actual costs, a standard mileage rate of 14 cents per mile can be used to compute the deduction. Parking fees and tolls are also deductible. It’s important to keep reliable written records that substantiate the use of the vehicle in connection with charitable services, DeChellis advised.
Conventions and travel expenses. Deductible out-of-pocket expenses may also be incurred in connection with conventions attended or travel incurred for a charitable purpose. However, the deductibility of these types of expenses is not as clear and they are more likely to be scrutinized by the IRS. Individuals who are chosen representatives of the charity normally can deduct their out-of-pocket expenses, including transportation, meals and lodging, when attending a convention. If not a chosen representative, only costs incurred while providing services during the convention are deductible -- travel and related costs are not.
“Necessary travel expenses related to charitable service are tax-deductible provided there is no significant element of personal pleasure, recreation, or vacation in the travel,” said DeChellis. “That doesn’t mean the individual can’t enjoy providing the services; however, he or she must be on duty in a genuine and substantial sense throughout the trip—having only nominal duties won’t count.” For example, a Boy Scout troop leader in charge of supervising a weekend camping trip can deduct his out-of-pocket travel costs.
Other expenses. Examples of other types of deductible out-of-pocket expenses include:
- Paying for underprivileged youths selected by a charity to attend athletic events, movies, or dinners
- Some of the costs of being a foster parent for the benefit of a qualified organization
- Costs incurred while serving either as a deacon candidate or an ordained deacon in a church’s permanent diaconate program
Related but not direct expenses. Out-of-pocket expenses that are related, but not direct costs, are normally not deductible. For example, babysitting costs that an individual pays so he or she can perform volunteer services are not deductible, even though they are necessary.
Substantiation requirements. Volunteers who deduct out-of-pocket expenses must keep adequate records that prove the amount of the expenses. And if an out-of-pocket expense is $250 or more, the volunteer must have a written acknowledgement from the charity describing the services provided and whether any goods or services (including the value) were received from the charity in return. The amount of the out-of-pocket expenses does not need to be shown on the acknowledgement; however the acknowledgement must be obtained before filing the return claiming the deduction.
Taxpayers should consult with a personal tax advisor before applying these or other tax strategies.
Up-to-date analyses of legislation and regulations affecting individual taxpayers are available to tax and accounting professionals on the industry-leading, award-winning Thomson Reuters Checkpoint research platform.
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