At Issue

Here is a question we’ve received several times this year – Are donated services/labor tax deductible on the “donors” tax return per IRS rules?

Situation

Ward, the CFO, at Marathon Bible College (MBC), A private college exempt under Internal Revenue Code section 501(c)(3), calls us with a question. “We are in the process of making budget cuts. There are a few of our current adjunct professors that who have decided to forego being paid for the remainder of the semester. We would write them a letter thanking them for donating their time to the college. Can they claim the value of their donated labor as a contribution for a tax deduction on their tax return?”

Rules

The short answer is no. You cannot claim the value of donated services as a tax deduction (generally because the “donor” never included the income from those services as taxable income). Remember that unpaid “workers” essentially become volunteers, so there can be some legal considerations also.

However, as “volunteers”, the adjuncts may be able to deduct certain expenses related to their “donation” of labor/services.

From IRS Publication 526:

Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. The amounts must be:

• Unreimbursed,

• Directly connected with the services,

• Expenses you had only because of the services you gave, and

• Not personal, living, or family expenses.
Q&A:
*I volunteer 6 hours a week in the office of a qualified organization. The receptionist is paid $10 an hour for the same work. Can I deduct $60 a week for my time?
No, you cannot deduct the value of your time or services.
*The office is 30 miles from my home. Can I deduct any of my car expenses for these trips?
Yes, you can deduct the costs of gas and oil that are directly related to getting to and from the place where you volunteer. If you do not want to figure your actual costs, you can deduct 14 cents for each mile (2015).

 

Bottom Line

There are numerous misconceptions when it comes to donated services. Many times the service providers misunderstand the “non-deductibility”. On the other hand, they often are not aware of the opportunity to deduct certain related expenses. If your college acknowledges this type of donation in writing, be sure to be thankful, but – as with all non-cash contributions – never include a value in the acknowledgement letter. It can be a blessing to your college if workers forego wages, but you should also carefully consider any legal implications that may arise from this type of arrangement.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.