Volunteers Can Claim Charitable Deductions

If your clients volunteer or have children in the Boy or Girl Scouts, there's good news: The IRS permits deductions for certain purchases and activities. Julian Block reviews a few of these in the first of a three-part series on charitable deductions volunteers can take at tax time.

Nov 3rd 2020
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Millions of individuals volunteer their time to help raise funds or perform other tasks on behalf of charitable organizations like religious groups, schools, and hospitals. They’re rewarded for their good deeds when 1040 time rolls around.

What’s supposed to happen: Volunteers who use Form 1040’s Schedule A to itemize their deductions can claim unreimbursed expenses incurred while they work for organizations that satisfy the requirements spelled out in Internal Revenue Code Section 501 (c) 3.

What often occurs: Filing season after filing season, many volunteers fail to claim all of their allowable deductions, especially travel expenses.   

The IRS acknowledges they’re entitled to those deductions. But it imposes limitations on some kinds of expenses and frequently disputes other kinds.

Many volunteers have belatedly learned the expensive way about those restrictions. Even worse, volunteers targeted for audits have to contend with examiners who tend to be skeptical and to ask searching questions.

What follows are reminders for volunteers on how to avoid pitfalls while they take maximum advantage of   perfectly legal opportunities. Let’s discuss how volunteer Valerie copes with and sometimes vanquishes the IRS.

Does the IRS become concerned when Valerie’s Schedule A includes write-offs for unreimbursed outlays—for instance, phone calls (but not regular monthly phone service fees), stamp and stationery? It doesn’t.

Does the IRS become more when there are some deductions for online fees and software? It allows them, to the extent that she’s able to document their use for charitable work.

Babysitters. The IRS disallows deductions for sitters who watch children while Valerie and her spouse involve themselves in charitable endeavors. While the agency concedes that they incur the payments for sitters solely to make their volunteer work possible, it has ruled that the payments are nondeductible personal expenses.

Should Valerie accept a revenue ruling as the last word? No. It merely reflects the official IRS position on an issue; it isn’t binding on the courts. The ruling was expressly rejected by the Tax Court, which held that babysitting fees that spring someone like Valerie out of her house are allowable, just the same as car expenses.

Uniforms. National organizations like the Red Cross and the Boy and Girl Scouts routinely require their volunteers to wear uniforms that aren’t adaptable to ordinary wear. The IRS permits deductions for their cost and cleaning.

Valerie and her fellow volunteers should forget about any deductions for unpaid time that they spend on charitable chores. To illustrate, Valerie provides advice on accounting and legal matters for a church battered by the ongoing coronavirus pandemic. The church can’t afford to pay her. Valerie charges $200 per hour for the kind of service that she renders; she spends 100 hours on her chores.

How, asks Valerie, will the IRS respond to a Schedule A that includes a write-off of $20,000? Unfavorably. Although gifts of property are deductible, her services aren’t “property.”

To further twist the knife, it won’t allow her to claim anything for the use of her home or office when she meets with church officials or congregants. That, too, isn’t a contribution of property.

Blood donations. In 1953, the IRS issued Revenue Rule 162. It states that no deduction is permitted for donating blood, except for any travel expenses to and from the blood bank.

It’s a piece of cake for the IRS to justify this restriction. According to the ruling, blood donors don’t contribute property; they perform “services,” like Valerie in the preceding example.

On the other hand, does an agency tasked with the collection of taxes insist on its share of any payments received by persons who provide blood? Yup.

In a subsequent column, I’ll cover more often-overlooked outlays that are available to Valerie and other volunteers.

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 350 and counting). 

 

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