Charitable Giving and Volunteer Tax Breaks Due to COVID-19

Under new guidelines that apply only to the 2020 tax year, you can now donate 100% of your adjusted gross income and have it all offset your taxable income completely, as opposed to the usual 60% it was capped at before.

This means that if you have $75,000 of taxable income and donate the same amount to a qualified charity in 2020, your taxable income will be reduced to zero and you won’t owe any taxes on your income.

If you donate more than 100% of your adjusted gross income, you will not lose out on this deduction. Any charitable giving that is greater than the amount of your taxable income can be carried forward for the following five years but will be subject to the 60% AGI limitation in the upcoming years after 2020.

In the CARES Act, Congress included a provision to incentivize taxpayers who claim the standard deduction to make charitable contributions, as well, so this incentive is available, even if you don’t itemize your deductions. Donors that take the standard deduction can benefit from a tax break of up to $300 in charitable contributions for the 2020 tax year.

If you volunteered your time for a charity or governmental entity during the COVID-19 pandemic, you probably qualify for some tax breaks too. These rules actually apply to all charity volunteers, not just COVID-19 volunteers. Although no tax deduction is allowed for the value of services performed for a qualified charity or federal, state or local governmental agency, some deductions are permitted for out-of-pocket costs incurred while performing the services. The following are some examples:

• Away-from-home travel expenses while performing services for a charity, including out-of-pocket round-trip travel costs, taxi fares and other costs of transportation between the airport or station and hotel, plus 100% of lodging and meals. These expenses are only deductible if there is no significant element of personal pleasure associated with the travel or if your services for a charity do not involve lobbying activities.
• The cost of entertaining others on behalf of a charity, such as wining and dining a potential large contributor (but the costs of your own entertainment and meals are not deductible).
• If you use your car or other vehicle while performing services for a charitable organization, you may deduct your actual unreimbursed expenses that are directly attributable to the services, such as gas and oil costs, or you may deduct a flat 14 cents per mile for the charitable use of your car. You may also deduct parking fees and tolls.
• You can deduct the cost of the uniform you wear when doing volunteer work for the charity, as long as the uniform has no general utility. The cost of cleaning the uniform can also be deducted.

There are some misconceptions as to what constitutes a charitable deduction, and the following are frequently encountered issues:

• No deduction is allowed for the depreciation of a capital asset as a charitable deduction. This includes vehicles and computers.

Example: Kathy volunteers as a member of the sheriff’s mounted search and rescue team. As part of volunteering, Kathy is required to provide a horse. Kathy is not allowed to deduct the cost of purchasing her horse or to depreciate the value of her horse. She can, however, deduct uniforms, travel and other out-of-pocket expenses associated with the volunteer work.

However, a taxpayer may deduct the cost of maintaining a personally owned asset to the extent that its use is related to providing services for a charity. Thus, for example, a taxpayer is allowed to deduct the fuel, maintenance and repair costs (but not depreciation or the fair rental value) of piloting his or her plane in connection with volunteer activities for the Civil Air Patrol. Similarly, a taxpayer — such as Kathy in our example, who participated in a mounted posse that is a civilian reserve unit of the county sheriff’s office — could deduct the cost of maintaining a horse (shoeing and stabling).

• A taxpayer who buys an asset and uses it while performing volunteer services for a charity can’t deduct its cost if he or she retains ownership of it. That’s true even if the asset is used exclusively for charitable purposes. So, for example, this rule would knock out a deduction for COVID-19 personal protective equipment, such as face coverings and gloves that an individual purchased and used while volunteering at a food bank, if the volunteer retains these items after performing the volunteer work. However, if that individual purchased and donated personal protective equipment to the county for use by medical personnel at a coronavirus testing site, the cost of the items would be allowed.  

All charitable deductions for a contribution of $250 or more are only allowed if you substantiate the contribution with a written acknowledgment from the charitable organization (including a government agency). To verify your contribution:

• Get written documentation from the charity about the nature of your volunteering activity and the need for related expenses to be paid. For example, if you travel out of town as a volunteer, request a letter from the charity explaining why you’re needed at the out-of-town location.
• You should submit a statement of expenses to the charity if you are paying out of pocket for substantial amounts, preferably with a copy of the receipts. Then, arrange for the charity to acknowledge the amount of the contribution in writing.
• Maintain detailed records of your out-of-pocket expenses — receipts plus a written record of the time, place, amount and charitable purpose of the expense.

Lastly, employees (where their employer participates) can contribute the value of unused paid vacation and leave time to qualified charities and not have to include the leave payments in income.

For additional details related to expenses incurred as a charity volunteer or the special 2020 charitable provisions, please contact our office. We’ll be more than happy to assist you.