Many of my clients volunteer for religious institutions and other charitable organizations. I like to remind them that volunteers qualify for tax breaks. Their itemized deductions include what they spend to cover unreimbursed out-of-pocket outlays—though there are limits to the IRS’s generosity.
I caution clients not to count on deductions for the value of the unpaid time they devote to charitable pursuits. Let’s say the prevailing rate for the kind of services they render is $100 per hour, and they spend 100 hours to render those services during the year in question. That doesn’t entitle them to a $10,000 write-off. The Internal Revenue Service’s rationale: While deductions are allowed for gifts of property, the agency doesn’t consider their services to be “property.”
The agency also doesn’t allow volunteers to claim anything for the use of their homes or offices to conduct meetings. That, too, isn’t a contribution of “property.” Here are some other issues that often arise:
- Blood donations: An IRS ruling says there’s no deduction for donating blood, except for any travel expenses to and from the blood bank. How does the agency justify this restriction? Easy. Here, too, it says that the donors are performing “services” and not donating property. On the other hand, if you are paid for providing blood, the IRS insists on its share of any payment received.
- Uniforms: Organizations like the Red Cross and the Scouts require their volunteers to wear uniforms. Because these aren’t adaptable to ordinary wear, the IRS says deductions are allowed for their cost and cleaning.
- Overnight outlays: Many volunteers do work that requires them to be away from home overnight. Their deductions aren’t limited to travel expenses. They can also include lodgings and meals, as long as they’re “reasonable,” as opposed to “lavish or extravagant.” Also, these meals are 100 percent deductible, unlike business meals, which are only 50 percent deductible.
An example: While volunteer Imelda can deduct these expenses when she attends an organization’s convention as a duly appointed delegate, she can’t deduct personal expenses such as sightseeing or movie tickets. Nor is Imelda allowed to deduct travel or other expenses incurred by her spouse or children.
What if she stays at a luxury hotel? The IRS could potentially challenge the cost as lavish and extravagant. Whether Imelda prevails might depend on the scope and importance of her charitable work.
Let's take the case of Harry T. Cavalaris, who sojourned at “deluxe” hotels when he did volunteer work for his church. A 1996 decision by the Tax Court rebuffed the IRS’s contention that the lodging expenses were lavish, stating that “while few would characterize his choices of accommodations as frugal, they were generally convenient.”
Harry testified that he used hotels that hosted the meetings he attended or similarly priced lodgings nearby when rooms were unavailable at host hotels, a practice that saved him additional travel costs. Moreover, he held prestigious positions at the charitable organizations, so staying at plush places might have been the reasonable thing to do.
The Tax Court did, however, draw a line: It disallowed extravagant tips, car repair expenses, spa charges and other expenditures not incurred for charitable reasons.
What if the IRS audits you? As a precaution, save a copy of the convention program and check off the sessions you attend as a delegate. Sign an attendance book for any sessions that provide one. Keep a diary of your convention-related expenses, along with hotel and restaurant bills.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 300 and counting).
About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.