My friend Julian Block seems to have a knack for coming up with practical down to earth tax advice. Frankly, several of his pieces have done a lot better than some of the geeky stuff that I have felt pretty proud of. I’ve told him he should have his own blog, but in the meantime, I’ll continue to exploit him.
Charitable Deductions for Animal-Rescue Volunteers
Millions of individuals volunteer to help raise funds or perform other tasks on behalf of animal-rescue groups and other charitable organizations. When the annual reckoning with the Internal Revenue Service rolls around, the reward for their willingness to help out can take the form of write-offs for unreimbursed expenses incurred while they do volunteer work for rescue groups like the Humane Society of the U.S and the ASPCA. To qualify as charitable deductions, the expenses in question must further the groups’ missions, such as foster care for stray animals.
Animal-rescue volunteers need to be mindful of tricky rules for donations, whether they take the form of gifts of cash or property or volunteer expenses. What follows is a summary of the many possibilities. Remember, though, that some are subject to restrictions and others are frequently disputed by the IRS.
Only out-of-pocket outlays count
The law allows volunteers to claim itemized deductions on Schedule A of Form 1040 only for what they spend to cover unreimbursed expenses—for instance, telephone calls, postage stamps and stationery, as well as other materials (say, to prepare posters or other forms of advertising for fund-raising campaigns).
What kinds of expenses can rescue workers write off at tax time? Some examples of qualifying outlays that are frequently overlooked: animal feed; medicines; cat litter; litter boxes; pet dishes; cleaning supplies, garbage bags, paper towels, laundry detergent and dish detergent; animal bedding; animal toys such as those that help with behavior modification and well-being; fees paid to veterinarians and behavior trainers; and food for volunteers building temporary shelters for pets evacuated from flood zones in hurricanes.
Caution
Forget about any deduction for the value of the unpaid time that you devote to rescue efforts and other charitable chores. So if the prevailing rate for the kind of services you render is $100 per hour and you wind up spending 100 hours to render those services during the year in question, that doesn’t entitle you to take a write-off of $10,000 for them. While deductions are allowed for gifts of property, the IRS doesn’t consider your services to qualify as “property.” Nor does the law allow you to claim anything for the use of your home or office to conduct meetings: that, too, isn’t a contribution of “property.”
Uniforms
Some organizations, such as the Red Cross and the Boy and Girl Scouts, require their volunteers to wear uniforms. Because these uniforms aren’t adaptable to ordinary wear, deductions are allowed for their cost and cleaning.
Babysitters
The IRS takes a dim view of deductions for babysitters who watch children while the parents do charity work. The payments for sitters, concedes the IRS, are incurred to make the volunteer work possible. Nevertheless, the agency ruled that the payments are nondeductible personal expenses.
Take heart, though. A revenue ruling is by no means the last word. It merely reflects the official IRS position on an issue and isn’t binding on the courts. The ruling was expressly rejected by the Tax Court. It held that babysitting fees that get you out of the house are allowable, just the same as car expenses linked to charitable work.
Travel
An often missed outlay begins the moment that you leave your home. Your allowable deductions include travel expenses to and from animal shelters, veterinarians, committee meetings, fundraising events, and so on. If you travel to and from your volunteer work by planes, trains, buses, or taxis, just make sure to keep track of your fares and claim them as travel expenses.
If you use your own auto, you have two options for handling the expenses: The first option is to deduct the actual cost of gas and oil. Unlike write-offs for business driving, you can’t claim depreciation because that isn’t an actual cash payment. Nor can you claim insurance and repairs unless you use the car only for charitable driving or the repairs are directly attributable to that use.
The second option is to make the paperwork simpler by claiming a standard mileage rate. The standard rate is 14 cents a mile for tax year 2012, unchanged since 1997, as set by law.
Tip
Whether you use the mileage allowance or drive a gas guzzler and claim actual costs, remember to deduct parking fees and bridge or highway tolls, as well.
Example
In the course of your charitable work this year, you drive 1,000 miles and shell out $50 for parking charges. Your allowable deduction is $190 (1,000 miles times 14 cents equals $140, plus $50 parking). Or, if you pay more for gas and oil than the mileage allowance, you can deduct actual costs, plus parking.
Caution
Stay within the speed limit. IRS regulations and rulings draw the line at deductions for traffic tickets. It matters not that you were on the way to rescue animals.
It’s a good idea, in case an IRS examiner questions your charitable travel, to be able to support your deductions with a glove compartment diary in which you record why and how far you went, as well as what you spend on parking. You don’t have to use the same car each time and can use more than one car at the same time. If you rent an auto and drive it only for charitable travel, include the entire rental charge with your other charitable expenses.
Away from home overnight expenses
When volunteer work requires that you be away from home overnight, your deductions also include lodgings and meals as long as they’re “reasonable,” as opposed to “lavish or extravagant.” Note that these meals are 100 percent deductible, unlike business meals, which are only 50 percent deductible.
An example: You can deduct these expenses when you attend an organization’s convention as a duly appointed delegate. But you can’t deduct for such personal expenses as sightseeing or movie tickets. Nor are you allowed to deduct travel or other expenses incurred by your spouse or children.
What if you stay at a luxury hotel? Possibly, the IRS will challenge the cost as lavish and extravagant. Whether you’re able to prevail might depend on the scope and importance of your charitable work.
A case in point, albeit not specifically animal-welfare-related: Harry T. Cavalaris sojourned at “deluxe” hotels when he did volunteer work for his church. The way the IRS read the rules, his lodging expenses were “lavish” and, therefore, nondeductible. The dispute wound up in the Tax Court. In a 1986 decision, it allowed the disputed expenses. Said the court, “While few would characterize his choices of accommodations as frugal, they were generally convenient.” Harry testified that he used hotels that hosted the meetings he attended or similarly priced lodgings nearby when rooms were unavailable at host hotels, a practice that saved him additional travel costs. Moreover, he held prestigious positions in the charitable organizations. So staying at plush places might have been the reasonable thing to do. However, there the court drew the line. It disallowed extravagant tips, car repair expenses, spa charges and other expenditures not incurred for charitable reasons.
Tip
To back up your deductions in the event of an IRS audit, save a copy of the convention program and check off the sessions that you attend as a delegate. Sign an attendance book for any sessions that provide one. Keep a diary of your convention related expenses, along with hotel and restaurant bills.
IRS paperwork
Strict rules apply when a volunteer incurs an unreimbursed expense of $250 or more, such as an airline ticket. No deduction for the outlay is permitted unless you obtain and keep for your records a written statement from the charity. The statement needs to describe the type of services you performed for the charity and whether you received any benefits in return. The charity needn’t list the expenses you pay as a volunteer.
Audits
Rescue workers might avoid the bother of audits by including brief explanations with their returns. Their statements should explain how deduction amounts were arrived at.
They shouldn’t over-explain, cautions the IRS. It wants them to be concise and attach some supporting evidence, but not every receipt. They should attach copies, not originals, because the documents may become separated from their returns. Hold off on submitting originals until the agency actually asks for proof of deductions. The IRS doesn’t allow electronic filing of Form 1040s with attachments. Submit paper 1040s.
Help from the IRS
For more information, take a look at IRS Publication 526, Charitable Contributions, available at irs.gov or telephone 800-TAX-FORM.
Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as: “a leading tax professional” (New York Times; “an accomplished writer on taxes” (Wall Street Journal); and “an authority on tax planning” (Financial Planning Magazine). Information about his books is at julianblocktaxexpert.com
You can follow me on twitter @peterreillycpa.
Originally published on Forbes.com on July 12th, 2012