- Find out which away-from-home travel expenses qualify as tax deductions.
- Do lodging and meals count as tax deductions?
- Find out if the cost of entertaining for charity qualifies as a tax deduction.
- Learn how to calculate automobile travel deductions.
- Find out how deductions apply to uniforms.
- Learn more about substantiation requirements.
Volunteering and tax breaks
If you volunteered time for a charity or governmental entity during the COVID-19 pandemic, you may qualify for tax breaks. These rules actually apply to all charity volunteers, not just COVID-19 volunteers. The IRS allows no tax deductions for the value of services performed for a qualified charity or federal, state or local governmental agency. However, they do permit some tax deductions for out-of-pocket costs incurred while performing the services. The following are some examples:
- Away-from-home travel expenses while performing services for a charity. These include out-of-pocket round-trip travel costs, taxi fares, and other costs of transportation between the airport or station and hotel, plus 100% of lodging and meals. These expenses only qualify as tax deductions if no significant element of personal pleasure associates with the travel. Additionally, your services for a charity may not involve lobbying activities.
- The cost of entertaining others on behalf of a charity, such as wining and dining a potential large contributor. The costs of your own entertainment and meals are not tax deductions, however.
- If you use your car or other vehicle while performing services for a charitable organization, you may deduct your actual unreimbursed expenses that are directly attributable to the services. These expenses include gas and oil costs, or you may deduct a flat 14 cents per mile for the use of your car. You may also deduct parking fees and tolls.
- You can deduct the cost of the uniform you wear when doing volunteer work for the charity, as long as the uniform has no general utility. The cost of cleaning the uniform qualifies as a deduction.
What counts as a charitable deduction
Misconceptions persist as to what constitutes charitable tax deductions, and the following issues frequently come up:
No deduction is allowed for the depreciation of a capital asset as a charitable deduction. This includes vehicles and computers.
Kathy volunteers as a member of the sheriff’s mounted search and rescue team. As part of volunteering, Kathy must provide a horse. Kathy may not deduct the cost of purchasing her horse or to depreciate the value of her horse. She can, however, deduct uniforms, travel, and other out-of-pocket expenses associated with the volunteer work.
However, a taxpayer may deduct the cost of maintaining a personally owned asset to the extent that its use relates to providing services for a charity. So, for example, a taxpayer may deduct the fuel, maintenance, and repair costs (but not depreciation or the fair rental value) of piloting his or her plane in connection with volunteer activities for the Civil Air Patrol. Similarly, a taxpayer—such as Kathy in our example, who participated in a mounted posse that is a civilian reserve unit of the county sheriff’s office—could deduct the cost of maintaining a horse (shoeing and stabling).
A taxpayer who buys an asset and uses it while performing volunteer services for a charity can’t deduct its cost if he or she retains ownership of it. That’s true even if the asset is used only for charitable purposes. So, for example, this rule would knock out tax deductions for COVID-19 personal protective equipment such as face coverings and gloves that an individual purchased and used while volunteering at a food bank if the volunteer retains these items after performing the volunteer work. But if that individual purchased and donated PPE to the county for use by medical personnel at a coronavirus testing site, the cost of the items would be allowed.
How to verify your charitable contribution for tax deductions
No charitable deduction is allowed for a contribution of $250 or more unless you substantiate the contribution with a written acknowledgment from the charitable organization (including a government agency). To verify your contribution:
- Obtain written documentation from the charitable organization.
- You should submit a statement of expenses to the charity if you are paying out of pocket for substantial amounts. Ideally, the statement should include a copy of the receipts. Then, arrange for the charity to acknowledge the amount of the contribution in writing.
- Maintain detailed records of your out-of-pocket expenses. Records include receipts plus a written record of the time, place, amount, and charitable purpose of the expense.
Other special charitable provisions for 2020 tax deductions
There are also other special charitable provisions for the 2020 tax year, including:
- Taxpayers that do not itemize their tax deductions can deduct up to $300 of cash contributions.
- Cash contributions for those that do itemize their deductions are not limited to 60% of their adjusted gross income in 2020.
- Employees (where their employer participates) can contribute the value of unused paid vacation and leave time to qualified charities They do not have to include the leave payments in income.
- You may also contact the charity about your volunteer activity and the need for related expenses to be paid. For example, if you travel out of town as a volunteer, request a letter from the charity explaining why you’re needed at the out-of-town location.
Fiducial can help
Need additional details related to expenses incurred as a charity volunteer or the special 2020 charitable provisions? Contact your Fiducial representative. Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations if you have questions. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.