IT ISN’T TAX SEASON YET, but as the end of the year approaches, now is a good time to start planning. Don’t forget to remind your volunteers and board members that volunteering can produce significant tax benefits.
Taxpayers who incur out-of-pocket expenses in rendering volunteer services for a qualified charity can deduct these expenses if they itemize their deductions.
These expenses must not be reimbursed by the charity, must be incurred principally in the service of the charity, and must not be for personal use, living expenses, or other non-charity related spending. Sorry, but the “value” of your time or use of your vacation home is never deductible!
The IRS recognizes the value of volunteering in the service of nonprofit organizations, including institutions of higher education. In fact, the IRS publication spelling out the rules for deducting actual volunteer expenses is titled: “Charities and Their Volunteers: Working Together to Help the Public.” (See IRS.gov)
Some of the costs volunteers can deduct include:
→Expenses related to travel, such as 1) parking and use of a personal vehicle (based on a standard per mile rate set annually by the IRS), and 2) costs related to air travel, meals, and lodging, ONLY if the volunteer or board activities were conducted through the duration of the trip.
→Out-of-pocket purchases that the volunteer made that were directly related or required to complete the service to the organization.
But there is a catch!
It is well understood that any expenses incurred on behalf of a charity exceeding $250 must be accompanied by a written receipt proving the expense. What is not widely understood is that the volunteer also must have (in hand and PRIOR TO FILING the return in which the deduction is claimed) a statement from the charity generally describing the services rendered and verifying that the charity provided no goods or services to the volunteer in return.
Without this statement, the IRS is free to disallow the deduction.
Best practice reminder 1: Be sure to tell volunteers and board members to keep a log (and copies of receipts!) of their service-related travel and expenses as soon as they start working with your organization. They’ll need them to itemize their deductions come tax season. As David Rae points out: “Keep good records. Think who, what, where, when, and why.” Better yet, add a section in your volunteer, trustee or board member handbooks that spell this out.
Best practice reminder 2: Do you have board, advisory board members, or trustees who incur significant travel expenses to attend board and committee meetings? As a matter of practice, just send all of them the letter and remind them to retain it in their records in the event the IRS comes knocking.
Below is a standard letter you can use to protect your valued volunteers, although you are advised to consult your tax advisor when appropriate. Note: this is separate from a gift receipt and separate from a stewardship letter thanking a volunteer or donor (though we have one of those for you to use too!).
*ALUMinate does not offer personalized tax advice to any constituents. Please consult your accountants or tax counsel for advice.
The Volunteer Letter Template
DATE HERE COLLEGE OR UNIVERSITY LETTERHEAD
To Whom It May Concern:
This letter certifies that NAME OF INSTITUTION OR ORGANIZATION, located at ADDRESS HERE, is a qualified, NAME OF STATE non-profit organization and tax-exempt entity under Internal Revenue Code section 501(c)(3).
Please let this letter serve as ORGANIZATION’S NAME’s official acknowledgement of VOLUNTEER’S FULL NAME’s uncompensated volunteer activities as TITLE OR ROLE during YEAR or DATE RANGE HERE.
In this role, VOLUNTEER’S NAME frequently travels to and attends SHORT LIST OF MEETINGS, EVENTS, OR VOLUNTEER ACTIVITIES to help SHORT DESCRIPTION OF SERVICE WORK / CONTRIBUTION TO THE ORGANIZATION’S MISSION.
VOLUNTEER’S NAME has not sought reimbursement for any of the foregoing expenses incurred in traveling and in conducting these services on behalf of ORGANIZATION’S NAME.
In addition, ORGANIZATION’S NAME has not provided any compensation (including goods or services) for VOLUNTEER’S NAME’s contributions and services outlined above.
Please direct any questions directly to CONTACT NAME, EMAIL AND NUMBER.
NAME AND TITLE
NAME OF COLLEGE OR UNIVERSITY