Charitable Tax Deductions – What’s Possible
Can I deduct time spent volunteering? Can I deduct time donated to charity? I get these questions several times every tax season from small business owners that are in the service industry and decide to donate their time to a worthy cause.
One would think that if I donate my time I should be able to deduct my normal per hour rate that I would have made if this work would have been done for a “true client.” Most business owners look at the situation as that I “would have” made $1000 if I invoice a client for 10 hours of my time, and since I am losing out on that revenue, shouldn’t I be able to get a tax deduction for it? Unfortunately you are not going to like my answer to the question.
The answer is NO for the time and services part of the donation, and YES for any expenses incurred or mileage driven for the charitable purpose.
Let me explain:
While your time is valuable in your business, when you donate your time, you have not reported the “income earned” from those services / time therefore you can not take a deduction for them. So in the above example, because the $1000 of income was not earned, received as a payment on and deposited into your business checking account, you would not be able to deduct the “loss of income.” Even if you did decide to some how report this income, the out come would be a wash and therefore not necessary for the added bookkeeping.
However, if you paid for any expenses (for example any supplies etc) you can deduct those as long as you have a receipt for them and you have documented what charitable organization the expense was for. In addition you can also deduct 14 cents per mile for any charitable miles you drove as part of volunteer work. This rate is for the 2014 tax year, the 2015 rate has not been released yet by the Internal Revenue Service.
Final note: Please remember that the organization you are volunteering for MUST be a registered charitable organization under IRS code section 501(3)c in order for you to be able to deduct the expenses and your mileage.
Most importantly should you have any questions or concerns you should reach out to your tax professional. They are there to assist you with your questions and concerns.
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