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Deducting Out-of-Pocket Volunteer Expenses

 Many taxpayers not only contribute money to their favorite charitable organization, they also give their time and incur other expenses related to the charity’s work. Although there is no deduction allowed for the contribution of services or the value of your time, unreimbursed out-of-pocket expenses may be deductible with the proper substantiation.

Determining whether an expense is deductible requires a facts-and-circumstances analysis. However, the IRS spells out the rules fairly clearly in Publication 526 to help make this decision. With regard to out-of-pocket expenses in giving services, the following expenses are allowed:

• Expenses must be unreimbursed
• Expenses must be directly connected with the service
• Expenses must have only been incurred because of the service given
• Expenses cannot be personal, living, or family expenses

Travel

A typical expense incurred while performing charity work is travel. Travel expenses are generally allowed as a charitable deduction if the travel was required in order to perform the services. The deduction is allowed for actual expenses (gas, oil, cab, bus, or train fare), or a standard mileage rate of 14 cents per mile is allowed for travel by car. Some charity work requires an overnight stay and significant travel expenses. If charitable services are performed during the large majority of the trip, travel expenses are deductible (for example, overnight troop leaders for tax-exempt youth groups). However, if only nominal duties are required or no duties are required for a significant part of the trip, then the travel expenses cannot be deducted at all.

Uniforms 

If a uniform is required to provide the charity work, the cost and upkeep may be deducted as long as the uniform is not suitable for everyday use and is required  as part of the service (for example, a Red Cross nurse’s aide at a hospital).

Childcare Expenses

If a taxpayer pays a babysitter while performing charity work, the childcare expenses are not deductible.

Recreation

A taxpayer can deduct reasonable out-of-pocket expenses paid to take underprivileged youth to athletic events, movies, play, or dinners. The youth must be selected through a charitable organization and the taxpayer’s costs to attend the same events are not deductible.

Value of Time or Services

The value of a taxpayer’s time provided in connection with charity work is not deductible. This includes the value of income lost while providing charitable services. Furthermore, donations of services such as medical services, teaching services, and counseling services are not deductible.

Hosting an Event

The out-of-pocket expenses incurred if a taxpayer hosts and pays for a catered fund-raiser in his or her home are deductible. If any single expense is greater than $250, the expenses will be deductible as long as they can be substantiated and the charity provides written acknowledgment of the gift. (See below.)

Personal versus Volunteer Expenses

Sometimes expenses incurred during volunteer events may be mixed with personal expenses. This may occur when services are provided in the home or during travel to and from a charitable event. A reasonable attempt must be made to determine the portion that is personal. The personal portion is not deductible. 

Substantiation

To substantiate a cash gift, a donor must provide a cancelled check, or a receipt or letter from the charity showing the donee’s name, contribution date, and amount, or other reliable written records showing the donee’s name, contribution date, and amount. The requirements for unreimbursed expenses are the same. 

In a recent Tax Court case, Van Dusen v. Commissioner, the Court held that the taxpayer was allowed to deduct nearly $12,000 of expenses she incurred while taking care of close to 70 stray cats as part of her work with the charitable organization Fix Our Ferals. Some of her expenses were for cat food, vet bills, cat litter, paper towels, and laundry soap and even a portion of her utility bills. In his 42-page decision, Judge Morrison agreed with many of the taxpayer's arguments that the expenses were incurred solely in response to her charity work. He allowed her to deduct most of some bills and half of others for care of the feral cats, ruling they were unreimbursed expenses incurred to help a charitable group in its mission. Although the taxpayer did not have cancelled checks, she produced her check register with carbon copies of her checks, her bank account statements, credit card receipts, vet records, and utility bills. The Court held that she had substantially complied with the rules and allowed her deductions.

$250 or more: If any single expense exceeds $250, a proper acknowledgment must be received from the charity. Specifically, the taxpayer must keep records of pertinent expenses, and the charity must write a letter acknowledging the gift. In the Van Dusen case, several expenses greater than $250 were deemed non-deductible because the taxpayer did not have an acknowledgment from the charity.

In conclusion, while time & value of services provided while performing charitable work are not deductible, out-of- pocket expenses incurred may be deductible. Expenses need to be properly documented and a written acknowledgment needs to be received by the charity for expenses over $250. 

For further information, please contact Patti Benaissa at pbenaissa@BlackmanKallick.com or 312-980-5290 or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.