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Tax Deduction for Time Spent Volunteering

This article was written by in Charity, Taxes. 4 comments.

I recently received reader feedback from a conscious saver who is planning to move his money from Wells Fargo to a credit union. She won’t make the Bank Transfer Day November 5 goal, because the credit union’s branch is planned to open November 7. This reader plans to be one of the new branch’s first customers.

This reader wrote into Consumerism Commentary not to write about the effort to move away from big banks. She volunteers for charitable organizations and is wondering why there is no tax benefit available for volunteer time. Charitable financial contributions, such as cash, stocks, or property, are often tax-deductible if the organization receiving the donation is a registered non-profit. I’ve taken advantage of these tax deductions for several years, but for me, the purpose of contributing to non-profit organizations is not the tax deduction. The purpose is to legitimately help an organization whose mission is meaningful to me and my worldview.

I’ve been lucky to be in a financial situation where contributing to organizations would not endanger my own bank account. Another method of donation that can have a great effect on an organization is spending time as a volunteer. In my experience, most non-profit organizations do not generate enough revenue from operations or fundraising to maintain a healthy payroll. They often rely on passionate volunteers to handle a large amount of work. If you don’t have a large amount of money to provide an organization, you could be more beneficial to the group by offering your services as an unpaid volunteer.

VolunteerIf the more financially-comfortable money donors receive a benefit from the government for their assistance in the form of a tax deduction, shouldn’t volunteers receive a benefit related to the financial value of their time and work? Furthermore, the requirement that taxpayers need to itemize deductions in order to receive the charitable contribution deduction results in lower-income taxpayers, who are less likely to itemize, don’t take a deduction they might deserve. This tax deduction favors upper middle class and above because they are more likely to have money to share and are more likely to itemize deductions.

The Congressional Budget Office agrees with me: “Such tax incentives are limited, however, to the subset of taxpayers who itemize, and they favor high-income people, who face relatively higher marginal tax rates.”

While the feeling of being a positive force in the world should be a good enough motivator for working with organizations whose missions you’re passionate about, why should one form of contribution be encouraged through tax policy while another is not?

The War Revenue Act of 1917 established the charitable contributions deduction, only four years after the federal income tax as we know it was established. It’s long been a part of the U.S. tax code and isn’t likely to go away, particularly because it’s not only individuals who take advantage of the benefit. Some corporations can deduct up to 10% of their taxable income, and you can be sure that regardless of corporate goals, shareholders want their companies to reduce expenses for taxes as much as possible. Major contributions also constitute great public relations, helping prospective customers associate good deeds with the company.

Understanding that the tax deduction for charitable contributions would never go away without a major overhaul of the U.S. tax code, is there a place for additional deductions for time and effort spent volunteering?

There would be a few challenges.

  • Fraud. With a financial transaction, the bank has a record that can be submitted to the IRS for proof if called upon to do so. Without an independent verification of the time spent volunteering, it would be too easy to submit false documentation and take advantage of the system.
  • Valuation. How do you put a value on one hour spent as a volunteer? The value of time has always generated good discussion. Is an hour from a CEO who sacrifices the time he could be spending building a company, creating jobs, to be a volunteer more valuable than an hour from a high school student who is looking for opportunities to enhance his college applications? If the CEO spends his time stuffing envelopes with fundraising postcards and the student takes an hour to organize an event having a direct impact on an elderly community, is each hour rated the same?

These issues are not insurmountable, but it would take some planning to develop a method of making the tax deduction verifiable and fair. With tax policy set by lobbyists, we may never see an arrangement like this within the tax code. Unless corporations were to find value in spending time rather than money for charitable causes, there would not be enough pressure on politicians to change the rule.

The reader who brought this idea to my attention also asked the following: “How do we make suggestions to the tax laws? Is there a process for raising such an issue?”

The first stop is your local Representative and Senators. Send letters, call their offices, and get more people to do the same. Laws can be changed by citizens, but it would take a significant effort. If you feel strongly about the issue, convince others to take up the cause with you.

It’s almost Thanksgiving, so take a page from Arlo Guthrie’s Alice’s Restaurant. For people to change even a small aspect of the tax code, it’s going to take a movement. If you’re passionate about this idea, start websites, inspire people to follow, and change the world.

Photo: Fort Meade
Congressional Budget Office

Updated November 3, 2011 and originally published November 1, 2011.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 4 comments… read them below or add one }

avatar 1 Anonymous

I don’t think Fraud would be too much of a problem. You could have to require the charity to track the hours in question and provide a receipt or timecard to document it.

For compensation I think they’d have to just assign an arbitrary amount equal to the minimum wage law.
I think thats about the only practical way to do it. You can’t let individuals define their own hourly wages. The IRS shouldn’t be making a judgment call on how much peoples time is worth. So simply going with the minimum wage rate for everyone would be simple and work. Charity work isn’t supposed to be highly compensated anyway.

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avatar 2 qixx

Microsoft has a system for tracking volunteer time that they use compensate the non-profit financially at a rate of around $19 per hour. This number came from some government survey that decided that was what an hour of volunteer time was really worth to an organization. The major down side to tracking this information is that the government will move this deduction to the non-profits by making them account for the volunteer time the same as a $19 donation. That alone could kill some non-profits off.

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avatar 3 Anonymous

I first heard this song in 8th grade, and loved it, and until today, I had no idea what is was about. Now it all comes together, and I get your reference. Now can you explain to me what the motorcycle song is about?

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avatar 4 lynn

“Is an hour from a CEO who sacrifices the time he could be spending building a company, creating jobs,”

I have to say this brought an evil like smile to my face.

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