As Thanksgiving, Christmas, and the end of the tax year approach, many taxpayers are considering making charitable contributions. Almost every taxpayer knows about the deduction for contributions of cash and property made directly to a tax-exempt charitable organization.
However, this isn’t the only type of charitable contribution that is tax-deductible. Many out-of-pocket expenses incurred while providing services to tax-exempt charitable organizations can also be deducted, even though those payments are ultimately made to hotels, restaurants, or other for-profit businesses.
Per the IRS’s Publication 526, in order to deduct out-of-pocket expenses while providing services as charitable contributions, the expenses must meet several tests:
1) The expenses cannot have been reimbursed, by the charity itself or by any individual, and
2) The expenses must be directly connected with the services being provided to the charitable organization, and
3) The expenses must have been incurred only because of the services being provided, and
4) The expenses cannot be personal expenses, family expenses, or living expenses.
Any out-of-pocket expenses that meet the tests above are deductible only to the extent that the expenses exceed the value of any goods or services provided to you or your family, such as food and beverage, as a result of providing services to the charitable organization.
You must also keep adequate records to substantiate your expenses.
Furthermore, if any single out-of-pocket expense incurred while providing services is $250 or more, you must receive a acknowledgement of the expense from the charitable organization that indicates:
1) A description of the services you provided, and
2) A statement of whether the organization provided you any form of reimbursement for your expenses, including goods or services, and
3) The amount of any partial cash reimbursement and a description and good-faith estimated value of any goods or services provided as reimbursement, and
4) A statement that you only received an intangible religious benefit, if that statement would be true
This statement from the charitable organization must be received by the earlier of: a) the date you file the return reporting these expenses and b) the due date, including extensions, of the return the expenses are properly reportable on.
Any deductible out-of-pocket expenses should be reported on Line 16, Gifts By Cash or Check, of Schedule A on your Form 1040.
Here are a few examples of expenses that can be deductible, and a few that cannot be deducted. This list is not exhaustive, and the tests outlined above should always be kept in mind. If you are unsure about the treatment of any expense, you should contact an Atlanta tax accountant.
Auto expenses: The actual gas and oil costs incurred in directly providing services to the charitable organization can be deducted. In lieu of deducting actual gas and oil costs, you can instead deduct expenses at the standard charitable mileage rate. As of 2015, that rate is 14 cents per mile.
Actual parking and toll costs are deductible regardless of whether actual gas and oil expenses are deducted or the standard mileage rate is used.
General repair and maintenance expenses, depreciation expenses, registration fees, and insurance expenses cannot be deducted.
Travel expenses: Generally, travel expenses incurred due to the requirements of providing services to a charitable organization can be deducted as long as there is not a significant element of personal pleasure, recreation, or vacation. Simple enjoyment of providing services to the organization will not result in the nondeductibility of travel expenses.
Meals expense: The cost of meals incurred while providing services to a charity, including entertaining others on a charity’s behalf, are deductible, except for the cost of any meals consumed by you or your family members.
The value of your time and services: You cannot deduct any amount as a representation of the value of your time and services.
Reimbursement for the expenses of others’ services: You cannot deduct any amount that you pay for another person’s unreimbursed expenses in providing services to a charitable organization.
More information about the deduction of out-of-pocket expenses incurred while providing services to charitable organizations can be found in the IRS’s Publication 526.
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