Skip to main content

Out-of-Pocket Contributions

Question:

What constitutes charities given in kind (not money)? When individuals make meals for those ill in their churches or meals for the hospital are they deductible as charitable contributions?

Answer:

Tax law prohibits deductions for contributions (direct and out-of-pocket) to individuals; a qualified charitable organization must be the recipient. However, Internal Revenue Service Bulletin (IRB) No. 1997-5 allows deductions for "volunteers who incurred unreimbursed out-of-pocket expenses while performing services for a charity to substantiate their contributions" particularly those "incurred incident to the rendition of services to a donee organization" (page 9).

I interpret IRB 1997-5 as follows. Taking a meal to a fellow church member at home or to an individual in a hospital is not deductible--a wonderful philanthropic activity, but not deductible. Also, churches organizing dinners for common sharing often ask members to "bring a plate to pass" -- not deductible. However, if a church or other 501 (c)(3) charity sponsors a meal(s) for needy individuals and a donor responds by providing food, thus incurring unreimbursed out-of-pocket costs, then a deduction is permitted.

According to IRB 1997-5 "to carry out the purposes of the statute, volunteers claiming a charitable contribution deduction for an unreimbursed expense of $250 or more are still required to obtain substantiation confirming the type of services they performed for the charity" (page 9). In others, if you give more than $250, request a letter from the organization acknowledging your participation.

See also 2008 Publication 26 entitled Charitable Contributions (pages 5 and 13). The Publication offers one example: "You can deduct reasonable unreimbursed out-of-pocket expenses you pay to allow underprivileged youth to attend athletic events, movies, or dinners. The youths must be selected by a charitable organization whose goal is to reduce junenile delinquency. Your own similar expenses in accompanying the youths are not deductible" (page 5). Presumably, the same rules apply to church donations to send needy youths to Bible camp.

Comments

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...

How can my ministry expenses be covered by the church?

     How can my ministry expenses be covered?                            Many ministers use their personal autos for ministry purposes. Their employers can reimburse these costs using a standard mileage rate published by the IRS. The per mile rate represents employees’ entire reimbursable cost other than highway tolls and parking tabs. If not covered by use of the ministries’ credit card, other costs can be reimbursed as well—business and travel meals, lodging, office supplies, and professional library purchases among them. Some ministries reimburse travel costs using per-diems published by the IRS. If employee business expenses are not reimbursed, the personal tax deduction benefit to the individual minister is severely limited. Non-taxable reimbursements after documentation is provided to the employer follows IRS rules for accountable plans. Non-taxable cash advances before expenses are in...

What is the best retirement account for a Minister?

       What are my options for retirement savings?                  Regardless of options, start now! You probably have learned about traditional and Roth IRAs. We have often found them well short of the benefits we will share here regarding Internal Revenue Code section 403(b) plans. These plans must be established by your employer (although you might need to be the initiator). They are funded in two ways—withholding from your paycheck at your option (called “elective deferrals”) and as initiated by the employer (matching or non-elective contributions). These contributions not only save income tax, but they also reduce the income you must report as subject to the 15.3% SECA tax. Further, at retirement with the cooperation of your church or Christian ministry the distributions to you can be tax-free to the extent of your qualified housing expenses. Many ministries also adopt what are often called “FICA alternative” be...