Why Time Spent Volunteering Is Not Tax-Deductible

December 17, 2012; Source: CNBC

Taxpayers who itemize deductions on their income tax returns can deduct most contributions they make to charitable organizations. One significant exception is the “gift of services,” including volunteer time. It’s not uncommon for volunteers, including board members of nonprofit organizations, to ask why their time can’t be treated as a deductible contribution. John Carney of CNBC attempts to explain the issue and gets closer than most people, but it still misses the mark for some volunteers.

Carney’s explanation is that volunteering reduces one’s income because the volunteer is volunteering instead of working. Reducing one’s income reduces one’s tax bill, so the volunteer gets the benefit of lower taxes by not making money while volunteering. This assumes one makes money by working. Most pre-retirement adult people do. However, this explanation also assumes that one’s income is tied to the hours one works. This is often not true, especially for people who itemize deductions. Retirees, people who work for a salary, people with significant investment income, and people whose employers provide paid time for volunteering might be less than satisfied with this explanation.

Another explanation might be that the IRS is concerned about exchanges of cash and assets between donors and charities. Cash and assets are both quantifiable (dollars and cents) and uniform (your dollar is worth the same as my dollar). When no cash or assets transfer from you to a qualifying charity, the IRS, for tax purposes, does not recognize a gift as having taken place.

Does the IRS hate volunteers? Does it seek to discourage volunteering? We seriously doubt it. Imagine if volunteering were deductible. What is a volunteer’s time worth, both generally and in specific circumstances? Who decides, and how is that value documented? What kind of accounting controls would charities have to implement? What kind of documentation would a taxpayer have to maintain? Who wants to write those regulations, much less interpret them and attempt to comply with them?   Volunteering would become much more bureaucratic, managing volunteers would become more burdensome to charities, and the benefit to taxpayers of the added requirements would be relatively minor when compared to the costs of compliance.

Fortunately, the vast majority of volunteers are not concerned about the value of their time being deductible. Most volunteers, in our experience, are even unaware of the modest mileage deductions available to them. Following the money in charitable deductions isn’t always easy, but it’s far easier than trying to follow time. –Michael Wyland

About

Michael Wyland

Michael L. Wyland, CSL, has more than thirty years of experience in corporate and government public policy, management, and administration. An expert on nonprofit governance and public policy issues, he has been featured and quoted extensively in media including The Wall Street Journal, The New York Times, CNN, Fox News, Washington Post, The Chronicle of Philanthropy, and The Nonprofit Quarterly. He currently serves as an editorial advisory board member and contributor to The Nonprofit Quarterly, with more than 100 articles published since 2012. Michael is a partner in the consulting firm of Sumption & Wyland. Founded in 1990, the firm provides board governance consulting, public speaking and training, and executive coaching to nonprofit organizations. Sumption & Wyland has assisted more than 200 nonprofits with strategic planning services from pre-retreat research to staff-level implementation assistance and effectiveness monitoring. Speaking topics include board-CEO partnerships, nonprofit executive transition issues, and overviews of the nonprofit sector of the US economy. Michael was born in Washington, DC and raised in the Northern Virginia suburbs. Prior to co-founding Sumption & Wyland, Michael managed the computer operations for an independent oil & gas investor in Dallas, Texas and served as a staff assistant to a U.S. Representative. During his college years, he spent one summer working at the US Department of Labor and one summer working at the US Department of Justice. His past volunteer service includes various leadership positions at the local, state, and national level with the Young Republicans. He has been the secretary and president of a condominium homeowners association and the treasurer of a professional association serving computing professionals. He served as a Trustee and Vice President of Sertoma Foundation, and has been elected president of his local Sertoma club twice. In 2014, Michael was elected Chair of the South Dakota Commission for National and Community Service (Serve SD), on which he has served since its founding in 2011. He is currently working as a senior advisor to establish a national charity dedicated to the elimination of prejudice, expanding the scope and reach of the 120-year old Pi Lamba Phi fraternal organization. Michael's writing for NPQ often addresses healthcare policy and governance, scandals involving nonprofits, and the governance and policy implications of nonprofit stories in the news. He was widely quoted and cited for his work analyzing the governance issues related to the Jerry Sandusky/Penn State/Second Mile scandal in 2011. More recently, he has written more than 30 pieces for NPQ relating to the IRS scandal. In addition, he presented a paper at the national 2014 ARNOVA Conference about the IRS scandal and its implications for regulation of political activity by nonprofit organizations. Michael lives in Sioux Falls, SD with his wife, Margaret Sumption, and their dog. They have one adult son. In his leisure time, he likes to read histories and biographies, play golf, cook, and be a companion to his wife.

  • Lisa D.

    Why must almost every altruistic act be analyzed as a transaction? Can it be that many people might just want to do something for others without worrying what’s in it for them?

  • Andrew

    Interesting article. I agree it would be very difficult for nonprofits to keep track of their volunteers and also complicated to determine how much a volunteers’ time is worth. That’s why we are building http://www.volunteermark.com to be able to make this easy and simple for nonprofits to keep track of their volunteers and authenticate their service hours. Once we have a better standardized way of reporting hours it becomes easier to calculate an equivalent wage for each volunteer activity. Maybe some day we will have the proper infrastructure to make this possible!

  • Howard S. Davis

    I don’t have a comment so much as I have some questions. Has there ever been legislation submitted in the Congress to allow for a tax deduction for charitable services. If yes, was there debate? If yes, what was the nature of the debate?