Situation:
Given the looming
recession and the sagging stock market, one of your clients, a married couple, has cut back on their cash/stock charitable donations and are instead focusing on volunteering their time and services.
They are wondering if any of the costs associated with volunteering are deductible.
Their activities comprise the following:
The wife volunteers her time at the local food shelter weekly. She also runs numerous errands for the shelter (picking up supplies, etc.).
She has also allowed the food shelter to use part of her personal residence as a makeshift office (store financial records and surplus food and make fundraising phone calls).
Your client estimates that the shelter is using 20% of the total square footage of the house.
The taxpayers are also offering a free week at their mountain home as a prize for the highest contributor at the food shelter’s fundraiser (the fair rental value of a week’s stay is $10,000).
The husband works as a mentor at a charitable organization that pairs working individuals with students from disadvantaged backgrounds.
He meets weekly with the student who he is mentoring and takes him to lunch, movies, for coffee, etc.
Solution:
Travel costs: While the fair value of the volunteered time cannot be deducted, the taxpayers are allowed to deduct the mileage and other travel costs that are directly connected with and solely attributable to the rendition of the volunteer services. Thus, the taxpayers can deduct the costs associated with driving to purchase supplies for the organization and driving to and from home to the charity’s location.
With respect to car expenses, individuals may deduct actual operating expenses (gas and oil but not depreciation or other ownership costs) or use a standard mileage rate of 14 cents a mile. Taxpayers should maintain a log that shows the date, name of charity served and miles driven. They should also get a written acknowledgement from the charity to which they provided services on that specific date.
Also, air/rail/bus/taxi fares, parking costs and 100% of meals and lodging expenses are also deductible for trips that require an overnight stay or the need for a period of rest.
Use of residence/vacation home: Regardless of the square footage used, taxpayers are not allowed to deduct an allocable portion of typical costs associated with home ownership (mortgage, utilities, etc.).
While any actual outlays by the taxpayer for prizes are deductible, the taxpayers cannot take a deduction for the fair rental value (or the estimate of any lost rental income) of a week’s stay at their vacation home.
Any specific expenditure related to the charity’s use of the home – the actual cost of the fundraising phone calls and the actual costs of the fundraising cocktail parties (cost of food, excluding the food consumed by the taxpayers, and entertainment) – can be deducted by the taxpayer.
Expenses paid on behalf of needy individual: Generally, a direct contribution to a needy individual is not deductible as a charitable contribution. However, since the charity picked the student with whom the husband works, the husband’s expenditures on behalf of the individual are considered to be payments that help the charity carry out its functions and are therefore deductible.
As a result, the husband can deduct the portion of the costs incurred for the student he is mentoring.
He cannot deduct his own portion of the meals (or entertainment) since he derived a personal benefit from it.
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