As we move into the final stretch toward Tax Day (April 15th), here is a question we receive often – is the value donated services/labor tax deductible on the “donor’s” tax return according IRS rules? Say an adjunct professor agrees to teach a course “free of charge.” Or a carpenter builds a deck for a college’s new coffee shop and charges only for materials. Shouldn’t there be a tax deduction for the value of those peoples’ time?
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.
Although it is a great policy to send a Thank You/Acknowledgement letter to these “time donors,” you should never include an amount of “valuation” for their services.
However, as “volunteers”, the adjuncts and/or others may be able to deduct certain expenses related to their “donation” of labor/services. Mileage to and from the college might be deductible as a charitable contribution. If the labor/services included materials that the college did not pay for, those might also be deductible.
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:
Q: 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?A: No, you cannot deduct the value of your time or services.
Q:The office is 30 miles from my home. Can I deduct any of my car expenses for these trips?A: 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.
Q: I pay a babysitter to watch my children while I volunteer for a qualified organization. Can I deduct these costs?
A:No, you can’t deduct payments for childcare expenses as a charitable contribution, even if you would be unable to volunteer without childcare. (If you have childcare expenses so you can work for pay, see Pub. 503, Child and Dependent Care Expenses.)
(IRS Publication 526 – Feb 29, 2024).
In summary, 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.
Written by David C. Moja, CPA www.mojacompany.com 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.