Volunteers are the heart and soul of many charities. Recent Form 990 filings show that 85 percent of all charities have no paid staff---they are all volunteers. Even organizations with paid staff may still rely heavily on volunteers to accomplish their work.
In terms of the tax law, the relationship between an organization and its volunteers can be complex. Making sure volunteers understand the rules can help avoid creating taxable income for them and their mistakenly taking improper charitable deductions.
Out-of -pocket expenses
When volunteers pay out of their own pocket for expenses related to doing work for the charity, and the charity does not reimburse them, the out of pocket expenses may be deductible as a charitable contribution. In that case, the volunteer must follow the normal rules for a charitable deduction: the volunteer must itemize the deductions on Schedule A of Form 1040. The expenses the volunteer claims must be part of a volunteer activity that is directly related to the work of the qualifying charity.
The out-of-pocket expenses a volunteer incurs in service to a member of a charitable class may be deductible, but only if the recipient is chosen by the organization the volunteer serves. If the volunteer chooses to help someone he or she knows, the out-of-pocket expenses to that person are not deductible.
Personal expenses are not deductible
A volunteer’s personal expenses are not deductible, even if they allow the volunteer to serve the charity. For example, paying a babysitter for the time a volunteer spends serving the charity is not a deductible expense. Buying or cleaning clothing the volunteer wears during the service, which may also be used when the person isn’t volunteering, is not eligible as an out of pocket expense. But if an organization requires volunteers to wear or buy a uniform with its name, logo or special colors –something that couldn’t be worn every day. Or if the clothing has some special design or materials that make it usable only for the job at hand, buying and cleaning those could be a deductible out-of-pocket expense.
When volunteers buy food or drinks for their own meals and snacks, those expenses are not deductible if the work doesn’t require the volunteer to be away from home overnight.
Travel, for these purposes, means overnight stays required by the volunteer work. When trying to decide if travel expenses are deductible, the key question is whether the volunteer’s travel is substantially and genuinely providing service to the charity. Expenses you can deduct include air, rail, bus or taxi expenses and the cost of lodging or meals.
The tax law says that there is only a deduction for travel expenses if there is no significant element of personal pleasure, recreation or vacation in the travel. The travel must be specifically for volunteer work, and the volunteer has to serve for a full workday.
Using a personal vehicle
Volunteers may have to use their own cars or personal vehicles getting to and from volunteer activities or in connection with the volunteer work. There are two options for taking a deduction for the use of a personal vehicle.
The first is to take the rate per mile established in the tax law. The rate has stayed the same for many years and is not indexed to inflation or the cost of gasoline, and it’s probably not close to the actual cost of operating a vehicle. But the recordkeeping is relatively simple. Track the number of miles driven, the date, the name of the charity the volunteer was driving for, and the work that required the use of the car.
The other option is to claim what was actually paid for fuel. Here, the recordkeeping is more involved. In addition to requirements just noted, the volunteer must document the amount of fuel used and the cost per gallon.
Regardless of whether volunteers choose the standard rate or actual expenses, they can always deduct out-of-pocket expenses, such as parking and tolls. However, they cannot deduct overhead costs such as depreciation, maintenance, repairs or license or registration fees.
Value of time and services not deductible
Probably more than anything else, volunteers’ time, skills, and expertise are the most valuable assets to a disaster relief charity. So the question might naturally come up — can a volunteer deduct as a charitable contribution the value of time and services? The short answer is no. Even the value of income a volunteer might lose while providing disaster relief services is not deductible.
If a person provides equipment, space or other property to help a qualified organization provide disaster relief, the fair market value of its use is not deductible. For example, the fair market rental value of construction equipment used in rebuilding is not eligible for a charitable deduction, although the fuel used to operate it is considered a deductible out-of-pocket expense. Likewise, rental value of office space and equipment is not deductible. But if the owner provides paper and office supplies to the charity, those are deductible out-of-pocket expenses.
Volunteers for disaster relief organizations should keep written, reliable records to verify any unreimbursed expenses they may wish to claim as charitable contributions. The written record should be made at about the same time the expense was incurred. These records and any supporting documentation, such as receipts, should be kept for three years.
Volunteers should also be aware of a special rule for charitable deductions of $250 or more that also applies to out of pocket expenses. A volunteer can only claim a deduction for any single contribution of $250 or more if he or she gets a contemporaneous written acknowledgement. In this acknowledgement, the charity has to disclose whether it gave the volunteer anything in return for the out of pocket expenses. It has to describe the work or service the volunteer provided, the date of the service, and a statement that “no goods or services were provided in exchange.”
The volunteer must have the acknowledgement by either the time he or she files a return claiming the deduction, or the actual due date of the return, including extensions.
For a comprehensive explanation of this topic, see Publication 1771, Charitable Contributions - Substantiation and Disclosure Requirements.
Reimbursement of out of pocket expenses
Some organizations are able to reimburse volunteers for at least part of their out of pocket and other volunteer related expenses. As long as the reimbursements don’t exceed actual expenses reimbursing a volunteer for out-of-pocket expenses is not taxable income to the volunteer. Therefore, organizations should make sure that the reimbursements are properly documented, so they don’t unintentionally create taxable income for volunteers.
Volunteers are responsible for maintaining accurate records of their expenses. But, organizations should also keep accurate records by requiring volunteers to submit receipts, mileage records and other documentation before they are reimbursed. In the event of an audit, agents may want to see proof that any payment was, in fact, for reimbursement; also the organization should be ready to provide details on what the specific reimbursed expense was for, when it occurred, and how it is consistent with the organization’s purposes and activities.
It’s also a good idea for organizations to explain their reimbursement policy to volunteers, both verbally and in writing.
Publication 526, Charitable Contributions