We are always encouraging people to volunteer their time to help their church or other nonprofit organizations. Shouldn’t people who do volunteer work be provided with a tax deduction to compensate them for their donation of time?
Under current law, volunteers are prohibited from taking a charitable contribution deduction for the value of the services they provided to charities. However, the tax code does support volunteer work for charitable organizations by allowing volunteers to take a charitable contribution deduction for expenses they incur in connection with their volunteer services, but the expenses must be ones the charity would otherwise have to incur, not personal expenses of the volunteer. For example, volunteers may deduct the cost of materials they donate for use in repairs to a church, supplies they use in leading activities at a day care center, or uniforms they wear when serving as nurses’ aides. However, volunteers may not deduct personal expenses such as meals eaten during a break in a local service project, transportation to and from a school where they donate their time, or child care expenses.
Several church members go on a short-term mission trip. The value of their labor is not deductible. However, they can deduct their unreimbursed travel expenses (air fare, transportation, lodging, meals) and other direct related expenses.
A church pastor and his spouse travel to a church convention in another city. The convention offers the pastor significant church-related activities, such as participating in meetings, workshops, lectures and exhibits. The spouse is not an employee of the church and volunteers her time in a variety of events at the convention. Her unreimbursed travel, lodging and meal expense (but not the contribution of time) can be deducted as a charitable contribution.
If you pay more than fair market value to a qualified organization for merchandise, goods, or services, the amount you pay that is more than the value of the item can be a charitable contribution. For the excess amount to qualify, you must pay it with the intent to make a charitable contribution. Below are some examples:
You pay $65 for a ticket to a mission trip spaghetti dinner at church. All the proceeds of the function go to the mission trip or church. The ticket to the dinner has a fair market value of $10. When you buy your ticket, you know that its value is less than your payment. To figure the amount of your charitable contribution, you subtract the value of the benefit you receive ($10) from your total payment ($65). You can deduct $55 as a charitable contribution to the church.
You pay $100 for a cash wash at church. All the proceeds of the function go to the church. The ticket to the car wash has a fair market value of $20. When you buy your ticket, you know that its value is less than your payment. To figure the amount of your charitable contribution, you subtract the value of the benefit you receive ($20) from your total payment ($100). You can deduct $80 as a charitable contribution to the church.
Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to be in good used condition or better if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.
Frequently Asked Questions
- When I make a charitable contribution, is that contribution tax-deductible? Absolutely! Every qualified charity with a 501(c)(3) non-profit status from the IRS — and that means every donation you give counts as a tax-deductible donation.
- I want my giving to be deductible for this tax year. Do I need to make a donation by a certain time?Yes. Any donation you made on or by midnight December 31, 2012 will qualify as a deduction for 2012. Any donations made in 2013 (even at 12:01 a.m. on New Year’s Day) go towards the 2013 tax year. So if you’re looking for a tax benefit for this year, you’ll want to make that donation before December 31, 2012.
Donations charged to a credit card before the end of the year count for 2012. This is true even if the credit card bill isn’t paid until next year. Also, checks count for 2012 as long as they are mailed this year.
- Do I need to itemize my tax return to get a deduction for charitable giving? Yes, you do. Donations are only tax-deductible if you itemize deductions on your tax return. When you file your taxes, you’ll need to itemize your donations on the Schedule A of the 1040 form.
- Is it worth the time and effort to itemize just to get a deduction for charitable giving? The answer to that varies from person to person and is subject to phase outs at higher income levels. There are also other items that are included in this amount such as including interest on a home mortgage, medical expenses and ministry or business expenses that exceed certain base amounts, state taxes withheld, and real estate taxes paid. Your charitable donations in the form of cash and volunteer mileage may help to lower your tax liability. As with any major tax decision, confer with your own tax or financial advisor so you’re sure you get the most out of all your deductions.
- How much can I legally deduct on my taxes for charitable contributions? You can only deduct the amount of a contribution given voluntarily, with no expectation of a commensurate return. Generally speaking, you may deduct up to 50% of your aggregate gross income — half of your total income, subject to income phase-outs. There are some specific types of donations (such as gifts of stock, or donations to certain types of organizations) that have lower percentage ceilings.
Additionally, if you receive a financial or economic benefit in return for making a gift, the payment is not a deductible charitable contribution except to the extent that it exceeds the fair market value of the benefit. For example, if you gave $100 to a museum and received a book in return that sells regularly for $25, you can claim $75 as a charitable deduction.