Deductions for charitable contributions

August 6, 2019 | Chris van der Merwe

Want to provide your services to a charitable cause you feel strongly about and obtain a tax benefit? Who would not! Unfortunately, it is not simple to do. We will touch on a few elements of volunteer service along with the related tax consequences.

The Value of Your Services

For individuals that contribute a highly specialized skillset that would be quite costly if a charity had to pay for it, one would hope that the monetary value of these services could be deductible. However, IRS regulations firmly state that the monetary value of services is not deductible for tax purposes. This applies to skilled and unskilled services alike.

Out-of-Pocket Expenses

The best opportunity for a deduction lies with expenses paid by the taxpayer while performing volunteer service. In order to qualify, these expenses must meet the following characteristics: 

  • The charity must be qualified.
  • The expenses cannot be reimbursed.
  • The expenses must be directly connected with the services being provided.
  • The expenses must be incurred only because of your charitable work.
  • The expenses must not be personal, living, or family expenses.

Currently, a broad spectrum of expenses qualify. The most common expense is supplies. Whether it is tools to build a home for the needy or props to put on a play for children, the direct cost is normally deductible. Transportation costs are also deductible. Taxpayers normally have two alternatives. The taxpayer can either record their fuel receipts or use a standard 14 cents per charitable mile driven. If away from home travel is warranted, associated expenses are normally deductible, including meals, lodging, taxi fees, and other related travel expenses. One important rule to keep in mind is that these expenses will not be allowed for deduction if there is a material element of personal pleasure associated with the travel. For example, a hotel fee would normally be considered deductible. However, if the individual stayed at a luxury hotel, a significant element of personal pleasure would be involved. The expenses mentioned are not the only expenses allowed for deduction, but are more commonly seen. If you incur expenses while performing charity work and are not sure if it is deductible, consult your tax advisor. 

Recordkeeping Requirements

It is possible for the IRS to challenge any out-of-pocket costs deducted. This possibility makes it necessary for the taxpayer to keep a record of expenditures. Contributions to charity in excess of $250 are not deductible for tax purposes unless the contribution is backed by a written acknowledgement from the organization. This acknowledgement must generally specify the amount of cash donated and, if property was donated, a description of said property, and if the donor received anything of value in return for the contribution.

Who Does this Benefit?

Deductions for charitable contributions are a part of itemized deductions. This means that they are combined with other specified deductions. Every taxpayer is allowed a guaranteed standard minimum deduction; however, if the itemized deductions exceed the minimum, the itemized deductions are used instead. Due to the Tax Cuts and Jobs Act significantly increasing the standard deduction, the number of people itemizing has decreased. This means that it is possible that volunteer expenses may not provide any taxable benefit. Contrarily, a taxpayer that is already itemizing or just below the standard deduction threshold, has an opportunity to potentially decrease his/her annual tax liability. 

Top