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Deducting Travel Expenses for Charity

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People who travel to, or on behalf of, a charitable organization as a volunteer may be able to deduct the travel expenses as charitable contributions.  Unreimbursed travel expenses are deductible only if there is no significant element of personal pleasure, recreation, or vacation in the travel.  In determining whether there is a significant element of personal pleasure, the relevant question is how much time the taxpayer spends in service to the organization and how much time the taxpayer spends in recreation or in free time.

What Travel Expenses are Deductible?

Deductible travel expenses include:

  • Air, rail, and bus transportation
  • Auto expenses.  The use of an automobile for charitable purposes is deductible at the standard mileage rate of 14 cents per mile.  Alternatively, taxpayers may deduct the cost of gas and oil directly related to the use of the auto in providing services to a charitable organization
  • Reasonable food (subject to the 50% meal limitation) and lodging costs necessarily incurred while away from home
  • Transportation costs between the airport or station and the hotel (or place where the taxpayer is staying)

There is no deduction for the value of the volunteer’s time or services.

Example:  Tim is on the board of directors of a charity.  There is a seminar in Florida on fundraising.  Tim is sent by the charity to attend the seminar.  He is covering the travel, lodging, and meal costs.  If the seminar lasts a couple hours a day for three days, and Tim spends most of the day hanging out at Disney World, it is highly likely that the travel contains a significant element of personal pleasure and the travel, lodging, and meal expenses are not deductible.

Example 2:  Same as above except that the seminar is 8 hours a day for three days.  Tim goes out for dinner and entertainment each night.  In this example, most of the day is spent at the seminar and even though Tim enjoys some recreation at night, it is unlikely that this amount of recreation would constitute a significant element of personal pleasure.  Tim would be able to deduct the expenses.

Keeping Records

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

  • A cancelled check
  • A receipt showing the name of the charity, the contribution date, and the contribution amount

A contribution of $250 or more must, in addition to meeting one of the two above requirements, be supported by a contemporaneous written acknowledgement by the charity.  It is critical for clients to have all required receipts before filing their return, even if this means extending the return.  Since the charity is not directly receiving funds it may be unaware that the volunteer incurred the expenses, volunteers have to be proactive in requesting an acknowledgement that they incurred unreimbursed expenses while volunteering.

 

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Deducting Out-of-Pocket Expenses for Charity

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The IRS does not allow charitable deductions for donating services to a charity.  However, the IRS does allow charitable deductions for out of pocket expenses incurred while donating services to charity.  The expenses must be nonpersonal, directly connected with, and solely attributable to performing the donated services.

Examples of deductible unreimbursed expenses include:

  • Uniforms unsuitable for everyday use
  • Equipment
  • Copying charges
  • Office supplies
  • Phone charges
  • Postage
  • Transportation
  • Travel expenses

Travel expenses and lodging (including meals subject to the 50% disallowance rule) are deductible only if:

  1. There is no significant personal pleasure, recreation, or vacation in the travel AND
  2. The performance of services is substantial

Example:  Tommy volunteers on a church project where he fixes up houses for the indigent.  Tommy buys small tools, cleaning supplies, and drives from house to house.  Tommy can claim charitable deductions for his out of pocket expenses for the small tools, cleaning supplies, and transportation expenses.

Example 2:  Johnny goes on a trip with his church group to Italy.  They attend mass in several churches and spend a significant amount of time sight-seeing.  In this case, it seems that Johnny derives significant personal pleasure from the trip so the travel expenses and lodging would not be deductible. 

The use of a vehicle for charity is deductible at a rate of 14 cents per mile.  Alternatively, taxpayers can deduct the actual gas and oil usage directly related to the charitable transportation.  Parking fees and tolls are also deductible whether the standard mileage rate or the actual expenses method is used.

 

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Buzzkill Disclaimer:  This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Not Receiving a Proper Acknowledgment Can be Fatal to a Charitable Deduction

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Congress set strict rules on substantiating charitable deductions.  There is a recent tax court case that disallowed charitable deductions even though the taxpayers had proof of payment through canceled checks.  The purpose of this blog is to list the substantiation requirements for making cash contributions and to review the facts of this recent case.

How to Substantiate Chartiable Contributions of Cash

When making a cash contribution of $250 or less, all that is required is a bank record (e.g., canceled check) or written receipt from the charity showing the charity’s name, amount, and date of donation.

When making a cash contribution of more than $250, no deduction will be allowed unless the taxpayer receives a written contemporaneous acknowledgement from the charity.  The acknowledgment must include ALL of the following:

  • The name and address of the charity
  • The date of the contribution
  • The amount of cash contributed
  • Whether the charity provided the donor with any goods or services in exchange for the contribution; and, if so, a description and a good faith estimate of the value of the goods and/or services provided to the donor.

To be contemporary, the acknowledgement must be obtained by the taxpayer on or before the earlier of:

  • The date the donor files her tax return for the year the donation was made OR
  • The return’s extended due date.

The Court Case

In the Durden case, the Tax Court disallowed a taxpayer’s charitable contribution even though the taxpayer had canceled checks and a written acknowledgement from the charity.  The reason the contribution was disallowed was because the acknowledgement was insufficient.

On their 2007 tax return, the Durdens claimed a charitable deduction of $22,000 for contributions to their church.  The contributions were made by check.  The Durdens received a written acknowledgement from the church; however, the acknowledgement was not sufficient because it did not state whether the Durdens received any goods or services in exchange for the contribution.  In fact, they did not.  The church issued another written acknowledgment stating that the Durdens did not receive any goods or services in exchange for their contribution.  However, this second acknowledgment was insufficient because it was received by the Durdens after they filed their tax return that listed the charitable contribution (remember that the acknowledgment has to be received by the earlier of (1) when the return is filed or (2) the extended due date of the return).

Taxpayers must be sure that the acknowledgment they receive from the charity lists all of the items in the substantiation requirements above.  Even though the Durdens did not receive anything in exchange for their contribution, the Tax Court held that the written acknowledgment had to explicitly state that nothing was received in exchange for the contribution.

Also, don’t forget the timing requirement.  It is important not to file the tax return until you receive the written acknowledgment.

Example:  John donates $1,000 to his church in December 2012 and has a canceled check.  He files his tax return on January 18, 2013.  He receives a written acknowledgment from the church on January 31, 2013.  His charitable contribution will NOT be allowed because he didn’t have the written acknowledgment when he filed his tax return. 

These are very strict rules and can result in very unfair treatment.

Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.

Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230.

 

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