Tough economic times may make it difficult to donate to worthy causes such as helping to clean up the disastrous oil spill in the Gulf of Mexico, much less finance a nice summer vacation. But if you’re willing to combine the two, you might be able to have fun and support charities at the same time.
Just ask Rob Seltzer, a Beverly Hills, Calif., accountant, who writes off a weeklong bike trip from Burlington, Vt., to Portland, Maine, on his tax return each year.
Cheating? Not at all. The ride is sponsored by a group called Charity Treks, which encourages avid cyclists such as Seltzer and his wife to find sponsors who will write checks for AIDS research.
Seltzer has been doing the ride since 2002 and typically raises between $5,000 and $7,000 for the cause. Charity Treks provides funding for research at the UCLA AIDS Institute and the Emory Vaccine Center at Emory University in Atlanta.
As a result, Seltzer’s airfare from Los Angeles, the cost to ship his bike, hotel accommodations before and after the race, the $175 registration fee and some meals all qualify as legitimate federal income-tax deductions.
“I figured I could do a good thing and ride down the coast,” Seltzer says. “It’s fun and an amazing experience.”
The trick, says Gregg Wind, partner at the Los Angeles accounting firm of Wind & Stern, is to connect with a qualified charity that’s willing to give you an assigned task “in a genuine and substantial sense throughout the trip.” That’s a quote from IRS Publication 526, which explains what volunteers can and cannot deduct.
Ironically, you’ll probably get a much better tax result when you volunteer for groups that operate on the other side of the country (or world) than you would helping a local charity, he adds. That’s because your time is not tax-deductible, but your travel expenses are.
If you teach kids to read at a local shelter, for example, the only costs that would be deductible would be the transportation expense to get there. That can either be claimed at a real cost—the taxi or bus fare—or at a rate of 14 cents per mile.
If, however, you fly to Mississippi to serve as a teacher with a qualified charity, your airfare, taxi, hotel and meals typically are all deductible.
“The deduction for travel expenses will not be denied simply because you enjoy providing services to the charitable organization,” Publication 526 explains. “However, if you only have nominal duties, or if for significant parts of the trip, you do not have any duties, you cannot deduct your travel expenses.”
What does that mean? If you’re a Scout leader, taking a group of kids on a trip where you’re overseeing the set-up and providing adult supervision the whole time, your trip is deductible, no matter how much you enjoy hanging out with the kids.
But if you devote only a few hours each day to charitable work and then spend the rest of your time poolside or exploring the local sights, the trip is not deductible regardless of how hard you work for the charity in those few hours.
And although you may not deduct the cost of theater tickets when writing off your excursion to work all day with the underprivileged in New York, you could write off a reasonable expense for the meals you eat in the city, Wind says.
The caveat: Don’t make the meals—or your accommodations—”lavish” or they may well be disallowed by the IRS, Wind says. What’s lavish? Like many tax questions, there are no bright-line answers, but Wind says you can get a good idea by looking up the “per diem” rules in Publication 1542.
Per diem rates are determined by the U.S. General Services Administration to help businesses figure out what employee travel expenses are tax deductible. But Wind says they can help taxpayers figure out what kind of charity travel write-offs won’t raise IRS hackles, too.
The rates are published on a city-by-city basis to account for regional differences. In San Francisco, the per diem rate for food and lodging is $263; in Memphis, the per diem rate tops out at $161. (In New York City the rate can be as high as $411.)
How do you claim charitable travel deductions on your tax return? You call them “cash contributions” and claim them on Schedule A, the form for itemized deductions, Seltzer says. You generally don’t need to specify how you came up with the donation figure on your return, but he thinks it’s wise to add a statement providing the detail, just in case.
Also be sure to keep meticulous records. Like all other tax documents, you should retain receipts and other data supporting your tax return for at least three years after filing.