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Posted by Jim McClaflin, EA, NTPI Fellow, CTRC

Out-of-Pocket Charitable Contributions & Deducting Donated Services

Out-of-Pocket Charitable Contributions & Deducting Donated Services

Deducting your charitable contribution is tricky because of the changing laws in 2022 and 2023. The law allows taxpayers to deduct their generous contributions without going through the itemizing method and still claim 100% of this AGI. However, these benefits have been revoked, and congress has yet to renew it. However, here are hints on what’s going on with out-of-pocket charitable and donation services deductions.

Donating Services

The law has canceled all deductions pertaining to people participating in charitable services on behalf of the organization or for taxpayers rendering the services. Thus, taxpayers that volunteer cannot deduct expenses used in charity work. However, they can still deduct unreimbursed expenses such as mileage expenses used in rendering the services. 

Regardless, taxpayers that donate directly to the running of the services rendered directly to the charitable organization can make charitable deductions. However, taxpayers must report the amount in their gross income, and no one can take the deduction on behalf of the taxpayer. The payment only increases the adjusted gross income (AGI) but is equivalent to the deductions even though it can affect other deductions and credits that are supposed to be claimed.

The IRS has a different interpretation of what is considered services or property. For instance, a newspaper advert and radio broadcast time charitable contribution is not deductible since the donor pays it. On the other hand, the exact services rendered by third-party lodging and airfare are deductible as property contributions. Property contribution is a contract right to receive bought services. 

However, suppose a taxpayer contributes to a charity and receives services in return. In that case, the taxpayer can make a deduction if the services benefit the charity, and the contribution is over the fair market value (FMV) for the services rendered. Consequently, a taxpayer can still make deductions after receiving other benefits for the contribution. 

Also, the IRS disagrees with deductions after the taxpayer has received substantial benefits for the contribution. In such cases, it is considered a contribution to a qualified retirement community. In essence, the taxpayer is allowed to have a retirement unit that is basically equal to the amount donated. In addition, the taxpayer may receive a refund, but it is not deductible since it is considered a substantial benefit.

Deducting Out-of-Pocket Expenses

Some out-of-pocket deductible expenses include unreimbursed transportation expenses such as mileage, tolls, parking, airfare, etc.; meals, supplies, lodging, and uniform or clothes used during the charitable donation.

You can calculate your deductible automobile expenses using either the actual expenses formula or the standard mileage rate, which is 14 cents/mile. You can deduct parking fees and tools using any of the deductible formulas. Taxpayers can also deduct oil and gas costs used during charitable events. However, some are not considered deductible expenses, such as maintenance and repairs, registration fees, and insurance costs. 

Under deductible expenses, taxpayers can deduct airfare, meals, and lodging as long as it is unrelated to personal gains like vacation, recreation, or pleasure. However, charitable travel expenses are not considered business-related, removing them from receiving a 50% benchmark on meals and entertainment. 

In addition, taxpayers can deduct the expense for the upkeep of uniforms used for donation services. For example, scout leader uniforms worn during charitable events are considered deductible expenses, provided the uniforms are not for everyday use.

A charitable taxpayer who spends time with the less privileged kids can deduct unreimbursed expenses used during the event, such as admission and meal costs. However, you cannot deduct any expenses used on yourself and the donor’s child care cost during the service.

You can make money by offering free services to the community. However, get acquainted with the tax law to make the correct deductions.



Jim McClaflin, EA, NTPI Fellow, CTRC
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