Apr 11, 2008

Tax Deduction Advice for Your Nonprofit's Volunteers

I got a nice surprise the other day while filling out my federal tax return: That $10 apronHumane Society apron I'd had to buy in order to walk dogs at my local Humane Society (modeled at right) was tax deductible! (And I was looking for every deduction I could get, given the number of unpleasant surprises in this year's return - but that's another story.)

It occurred to me, however, that while most nonprofit organizations do a good job of reminding contributors of money about the tax deductions they'll enjoy, very few say much about tax deductions their volunteers can take. And these volunteers might include everyone from board members to advisory council members to those who assist at special events or commit to regular activities.

True, we're probably not talking about big bucks, since there's no tax deduction for the very thing these volunteers contribute the most of -- their time. However, on the "every penny counts" theory, here's what the IRS will allow volunteers at nonprofits to add to their list of deductions:

  • Car and transportation expenses. Volunteers might need to get back and forth from home to your office, or to meetings or other sites (such as a special event or to deliver food to a homebound AIDS patient). If driving, they can choose between deducting gas and oil, or mileage at the standard rate of 14 cents per mile. As Stephen Fishman advises in Lower Taxes in 7 Easy Steps, however, "Given the cost of gasoline today, the 14 cent per mile limit is absurdly low, so you'd be better off keeping track of your actual driving expenses." Volunteers can also add in parking fees and tolls. But they can't claim general car repair and maintenance expenses, depreciation, registration fees, or the costs of tires or insurance. The public transport-minded can, of course, deduct subway, bus, or taxi fare.

  • Travel expenses. In cases where the volunteer is away from home performing services -- perhaps attending a convention or board meeting, taking underprivileged kids on a camping trip, or monitoring environmental destruction -- they can deduct their related expenses, such as airfare and other transportation, accommodations, and meals. However, there are important limitations on this one: The volunteer must gain no significant personal pleasure, recreation, or vacation in the travel. (Going on a fun trip and refusing to enjoy it probably won't make it deductible, either.) And the volunteer must really be working -- tagging along on an outing while performing nominal duties, or even no duties for significant parts of the trip, won't cut it.

  • Other out-of-pocket expenses. For example, board members might deduct unreimbursed phone, postage, and copying charges associated with preparing for meetings. I can deduct the dog treats that I'm asked to provide in order to help train dogs while walking them.

  • The aforementioned uniforms. This includes both their cost and their upkeep, so long as they're not suitable for everyday use (i.e. a T-shirt with a logo won't fly). Also, your organization must require the volunteers to wear the uniforms while performing services.

Some limitations apply to all deductions associated with volunteering. Volunteers must be itemizing their deductions to take advantage of this (so people who fill out a 1040EZ won't get any benefit). Volunteers cannot double-dip by claiming expenses for which the nonprofit already reimbursed them. The expenses must be directly related to the volunteers' work, and incurred only because of that work. They can't be personal, family, or living expenses (such as meals for children while they accompany the volunteer to a convention). And volunteers must keep reliable written records of the expenses.

Of course, in alerting volunteers to their potential tax deductions, you don't want to get into the business of giving personalized tax advice. For more information, suggest that they see IRS Publication 526, Charitable Contributions, or talk to a financial adviser. Tax-preparation software programs also provide guidance on this deduction.