United States: Tax Season Alert: Consider These Tips In Maximizing Your Charitable Tax Deduction

As you gather your tax materials and prepare to file your 2013 tax returns, you may wish to consider whether you have incurred out-of-pocket expenses while serving as a volunteer on behalf of a charitable organization. If so, your expenses may be tax deductible provided they are properly substantiated. It is prudent to have your documentation in order well in advance of filing your tax return. Otherwise, you run the risk of disallowance by the IRS.

A federal charitable income tax deduction is available for unreimbursed travel expenses and other out-of-pocket expenses incurred while volunteering. In order for these expenses to be deductible, the organization must be a qualified tax-exempt charitable organization eligible to receive charitable contributions. Unfortunately, no deduction is available for the value of a volunteer's time or services.

Unreimbursed Travel Expenses

Unreimbursed travel expenses incurred as a volunteer on behalf of a qualified charitable organization are deductible provided there is no significant element of personal pleasure, recreation or vacation in the travel and the services performed for the charity are relevant to the organization's mission. However, the deduction will not be jeopardized simply because the volunteer enjoys the trip or enjoys volunteering for the charity. For example, a taxpayer working on an archaeological excavation sponsored by a charitable organization for several hours each morning with the rest of the day free for recreation will not be permitted a deduction even if he or she works hard during those few hours, as there is a significant element of pleasure associated with this effort. In contrast, a charitable organization's local chapter member who attends an all-day regional meeting will not be subject to the travel disallowance rule by attending the theater in the evening. Taxpayers can deduct travel expenses only if the work is real and substantial throughout the trip. Consequently, charitable travel costs are not deductible if only nominal duties or no duties are performed for significant parts of the trip. This personal pleasure rule also applies to expenses paid indirectly, e.g., the volunteer makes a contribution to the charitable organization and the charity then pays the travel expenses.

Deductible travel expenses include:

  • Automobile expenses at the statutory standard mileage rate of 14 cents per mile (for tax year 2013). (Alternatively, the cost of gas and oil directly related to the use of the auto while providing services to a charitable organization is deductible. Directly related gas and oil expenses will usually generate a greater deduction than the statutory standard mileage rate; however, receipts must be maintained. Other automobile expenses, such as repairs, depreciation and insurance are not deductible.);
  • Parking fees and tolls incurred, which are deductible whether the standard rate or actual expense method is used;
  • Reasonable food (subject to the 50-percent meals and entertainment limitation) and lodging costs necessarily incurred while away from home; and
  • Transportation costs between the airport or rail station and the hotel.

Other Unreimbursed Out-of-Pocket Expenses

Other out-of-pocket expenses incurred while rendering charitable services that are deductible as charitable contributions include uniforms unsuitable for everyday use, equipment, copying charges, office supplies, long-distance charges and postage. Other examples of out-of-pocket costs and their deductibility include:

  • Costs incurred for caring for foster cats as a volunteer for an animal shelter or similar organization specializing in the neutering and care of wild cats (household utilities, veterinary services, pet supplies and cleaning supplies);
  • Cost of such items as food, lodging and clothing incurred by taxpayers on behalf of hurricane victims who were referred to the taxpayers by the Red Cross, American Civil Defense Association, Salvation Army or U.S. Office of Emergency Planning; and
  • Travel expenses incurred as a volunteer to a symphony orchestra on an overseas tour, which would not be deductible when the travel includes considerable sightseeing and other personal expenses.

Substantiation Requirements

Unreimbursed volunteer expenses have the same substantiation requirements that apply to cash contributions. To substantiate a cash gift, a donor must produce one of the following:

  • A cancelled check;
  • A receipt; or
  • When neither a cancelled check or receipt is available, "other reliable written records" showing the donee's name.

Additionally, for expenses of $250 or more, the following are required: a letter or other acknowledgement from the charity showing the donee's name, a description of the services provided and a statement as to whether the charity provided any goods or services in return for the services and, if so, a description and a good-faith estimate of their value (or a statement that only intangible religious benefits were provided).

We wrote more extensively about these requirements here.

It is essential to obtain the required substantiation prior to the filing of your income tax return. Although many charities automatically provide written acknowledgments to their donors, they are not required to do so except in the case of certain quid pro quo donations (where the donor received goods or services). Therefore, the donor often bears the responsibility for requesting and obtaining the necessary documentation from the charity. If you incur unreimbursed travel and other out-of-pocket expenses, it may be worthwhile to maintain the necessary documentation and consult with your tax advisor to ensure you maximize the associated tax savings.

If you would like more information about this topic or your own unique situation, or if you would like to receive a sample letter that provides written acknowledgement of volunteer services from a charitable organization, please contact Barbara A. Ruth, CPA, J.D., or Steven M. Packer, CPA, both in the Tax Accounting Group, or the practitioner with whom you are regularly in contact.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

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