EDITOR'S NOTE: This article was originally published in the June 2008 issue of Kiplinger's Retirement Report. To subscribe, click here.
Mimi O'Hagan, 78, loves traveling and working with her hands. So when the New York City resident discovered Habitat for Humanity's Global Village program a few years ago, she knew that she'd found a perfect fit. In 2006, she traveled to Ethiopia and worked with American and Ethiopian volunteers to build a house. "This was a life-changing experience," she says.
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After talking with her accountant, O'Hagan discovered that her experience was valuable in more ways than one: She had also earned a tax deduction on the program fee, meals and other volunteer-related expenses. O'Hagan deducted $2,500 in expenses, saving about $900 on her taxes.
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Volunteer travel is a unique way to see another part of the U.S. or the world. And while you're doing good, Uncle Sam may help you out with a charitable deduction for some of your expenses. Habitat for Humanity, Global Volunteers, Cross-Cultural Solutions and the American Hiking Society are among the organizations that offer tax-deductible volunteer trips lasting from a few days to a few months.
To qualify for a tax deduction, you'll first need to sign up with an organization that has 501(c)(3) tax-exempt status. The second element is a bit fuzzier. The IRS insists that the volunteer work must have no significant element of personal pleasure or recreation.
For trips to a distant location, this means you'll need to volunteer about eight hours a day, five days a week to qualify to deduct the airfare or other expenses incurred getting to and from your destination. If you tack on a couple of extra days to your trip to visit tourist hotspots, you will not be able to deduct the airfare. However, you will still be able to get a tax break for the program fee, meals and supplies directly related to your time spent volunteering.
That said, the IRS isn't completely inflexible. If you put in your eight-hour days and spend an evening souvenir shopping, you'll be able to get the tax break. "Just because you're having fun while you're volunteering doesn't disqualify the deduction," says Jeff Schnepper, a tax lawyer in Cherry Hill, N.J., and author of How to Pay Zero Taxes (McGraw-Hill, $18). He also notes that travelers cannot deduct the "value of their services" -- only their actual expenses.
Track Your Time and Expenses
Be sure to keep documents from the charitable organization as well as receipts for air and car travel, meals, lodging and volunteer-related expenses. "Write down how much time you spent working on the project, what you did and even who you met," says Randy Frischer, tax partner at consulting firm BDO Seidman, in New York City.
Volunteer organizations will provide documentation for your tax preparer. However, because travelers' plans vary and IRS rules have some gray areas, groups tend to be reluctant to provide much advice. "We always recommend that our volunteers follow up with their own personal tax adviser," says Kam Santos, a spokesperson for Cross-Cultural Solutions. (Check out IRS Publication 526, Charitable Contributions, at www.irs.gov/publications/p526.)
Tom Glassanos, 51, a management consultant who lives in Pleasanton, Cal., spent several weeks volunteering with his wife and son at three projects in Morocco with Cross-Cultural Solutions last summer. Glassanos says that he didn't know they qualified for a write-off until they booked the trip, but he happily took the deduction on their 2007 taxes.
The family used frequent-flier miles to get to their destination, but Glassanos was able to deduct $9,000, most of which were Cross-Cultural Solutions' fees. The deduction saved $2,500 in taxes. "After taking the tax savings into account, we spent less than we would have on our typical vacation budget," Glassanos says.
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