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So, you filed and paid all your taxes on the money you earned in 2021. Now, the company you work for finds itself in trouble and you are forced to pay back part of your compensation. The big question is, will the IRS refund you for the taxes you already paid related to this compensation? While this seems like a bizarre scenario at first glance, it is more common that you might think.  

How it Happens 

Reducing or holding back compensation which hasn’t been earned yet is easy. Simply pay an executive or employee less or don’t grant the stock option or bonus. Just don’t pay it. 

Things get tricky in the situation where compensation has already been paid and needs to be reversed. This is much, much tougher. If you are still within the same calendar year, then logistically it’s easier to make an adjustment; but unwinding compensation already awarded is never simple or easy. 

Requiring an employee to pay back compensation is not as uncommon as many think. The situation can be as simple as receiving a signing bonus with the stipulation to stay at least a year. IRS treatment of repaid compensation depends on the details. 

Details on Compensation Clawbacks 

The answer to the core question can vary, with the legal context and timing being the biggest drivers. For example, both Dodd-Frank and the Consumer Protection Act grant regulatory authority to mandate clawbacks, even in cases where the taxpayer was unaware of any wrongdoing. The Sarbanes-Oxlet Act has its own set of clawback regulations. In cases such as this there is the possibility, due to legal concerns, that a refund is not due to the taxpayer.  

Generally, in cases of contractual issues, the IRS doesn’t allow a taxpayer to undo an economic event as if it never happened. The general exception to this rule is if you receive and give back the same compensation within the same calendar year. The problem, however, is that clawbacks usually come in later years after a tax return has been filed. 

If you are still employed at the same company, they could simply agree to reduce your current year salary. If you are a former employee, things get tricker. You also have the possibility of amending a prior tax return in some cases. Unfortunately, many people find themselves in a situation where they need to claim a tax refund under Section 1341 of the tax code. 

Section 1341 is based on the claim of right doctrine and attempts to put a taxpayer in the same position he or she would have been in had they never received the income. To qualify for and file under this provision, the taxpayer must have included money in income in the prior year because they had an unrestricted right to it at that time and then later learned they did not have an unrestricted right to it after all, therefore having to give it back. 

Conclusion 

The rules and regulations around the taxability of compensation required to be repaid is not simple. While the core issue of whether one is voluntary or mandatory, givebacks almost always create tax problems. If you ever find yourself in a situation where you have to return a material amount of compensation, no matter what the source, it’s best to reach out to your trusted tax adviser for help navigating the complexities.

Estate and inheritance (“death”) taxes are levied on the transfer of property at death. The difference between an estate tax and an inheritance tax is based on who pays the bill. An estate tax is levied on the estate of the deceased, while an inheritance tax is levied on the heirs of the deceased. That’s the simple explanation. As for execution, there are far more nuances based on the monetary value of a bequest; the status of the beneficiary/(ies); and where you live when you pass away. 

Federal Estate Tax  

An estate tax applies to the value of the assets left behind by a decedent and is paid out from the proceeds of the estate before the rest of the assets are distributed to heirs. Estate wealth is usually comprised of cash, securities and real estate.  

In 2023, if an estate is valued at more than $12.92 million ($25.84 million for couples), the estate will owe a progressive tax rate levied on the value above that amount. For example, if an estate is valued at $15 million, it will pay estate taxes on the $2,080,000 above the exemption. The federal tax rate ranges from 18 percent to 40 percent, depending on the taxable value of the estate.  

Generally, the estate tax applies to only the wealthiest 2 percent of Americans, and only 0.07 percent of estates end up paying the tax, according to the Tax Policy Center. Note that assets inherited by a spouse or charitable organizations are generally not subject to an estate tax. 

Some states also levy an estate tax, based on the location of the property. Presently, 12 states plus the District of Columbia levy an estate tax: 

• Connecticut 
• District of Columbia 
• Hawaii 
• Illinois 
• Maine 
• Maryland 
• Massachusetts 
• Minnesota 
• New York 
• Oregon 
• Rhode Island 
• Vermont 
• Washington  

Estate Tax Strategies 

To minimize or eliminate estate taxes, the estate owner has several options. Among the more sophisticated are structuring an Irrevocable Life Insurance Trust, a Family Limited Partnership or funding a Qualified Personal Residence Trust. However, the easiest way to legally avoid estate taxes is to give assets away before you die. Estate owners can make tax-deductible contributions to charitable organizations or gift up to $17,000 in 2023 ($16,000 in 2022) a year, per person, to as many people as you want.  

Inheritance Tax 

An inheritance tax, on the other hand, is a state tax paid by the beneficiary (heir) of an estate. Not every state levies an inheritance tax, and the laws vary considerably by state. The tax is based on the relationship of the beneficiary to the decedent. For example, in some instances a beneficiary who is a surviving spouse, parent, child or grandchild may be exempt from the tax, whereas a brother, sister, niece or nephew may be subject to an inheritance tax. 

Presently, six states levy an inheritance tax (only Maryland levies both estate and inheritance taxes). Each state sets its own exclusion amount, ranging from $1 million to $9.1 million. Amounts above the state exclusion are then subject to a separate estate tax, which tends to range between 1 percent and 18 percent. The tax applies to decedents who lived in one of these states: 

• Iowa (phasing out tax by 2025) 
• Kentucky 
• Maryland 
• Nebraska 
• New Jersey 
• Pennsylvania 

Inheritance Tax Strategies 

Similar to estate tax strategies, an estate owner can minimize state inheritance taxes by transferring assets to a trust or family limited partnership, or by gifting assets. Be aware that assets owned under a Roth IRA or Roth 401(k) – that has been open for at least five years – are not subject to any taxes since contributions were already taxed and earnings grow tax free. You also might consider using a portion of your assets to purchase life insurance, naming your heirs as beneficiaries. Since life insurance proceeds are not taxable, this is a way to remove money from the estate to create a larger, tax-free inheritance.  

As for current estate assets, one surefire way to legally avoid inheritance taxes is to move to a state that doesn’t levy them. 

Learning new software is always a challenge. You have to learn the lay of the land before you can start working with it. How do I do this? How does the menu system work? How can I enter data without making a mistake? 

The learning process for financial software for your small business can be especially unnerving. Your livelihood depends on getting everything right. A mistake in an invoice you’re creating is more serious than using incorrect grammar or punctuation in a letter. 

We recommend that you let us give you a good introduction to QuickBooks, so you get the program set up correctly and learn the most basic, often-used functions. In the meantime, here are five things you can do to start getting your feet wet. 

Familiarize yourself with QuickBooks’ lists 

You’ll consult and use lists a lot in QuickBooks. Transaction forms offer access to data you’ve already created and will use. When you need to select a customer, for example, you can just open a drop-down list and click on one. 

QuickBooks also provides free-standing lists that you might need to use outside of transactions, though they’re often available there, too. Open the Lists menu to see them. They include Item List, Sales Tax Code List, and Class List. Click on one to open it, and you’ll see a series of menus running across the bottom of the window. They allow you to, for example, add or edit items, take actions like entering a sales receipt, and run related reports.  

Troubleshoot transactions 

What do you do when you know you’ve entered a transaction but you can’t find it? QuickBooks has good search tools, but sometimes you don’t have enough details to hunt effectively for the missing invoice, bill, etc. There are two reports that can help. 

It’s possible that the transaction you’re seeking was accidentally voided or deleted. Open the Reports menu and select Accountant & Taxes | Voided/Deleted Transactions Summary or Detail. If you have an idea of when the original transaction was entered, change the date range at the top of the screen. You really shouldn’t have many of these. If you do, let us help you determine why this is happening so frequently. You can get into some trouble if you void or delete transactions to solve a problem that should be resolved another way. 

While you’re in the Accountant & Taxes report list, open the Audit Trail. This is a listing of transactions that have been entered or modified, when, and by whom. If you have multiple users accessing and working with QuickBooks data, you should get to know this report. 

Work with windows 

Every time you open a window in QuickBooks, it stays open. You can always close it by clicking the X in the upper right corner of the window – not the program X in the farthest upper right corner. If you have a lot of windows open, all of that clicking can become tiresome. 

Open the Window menu to see your options there. You’ll see a list of all the windows that are open. Click on one to go there. You can also “tile” the windows vertically or horizontally so they overlap each other on the screen or “cascade” them, which places them on top of each other with only the window label showing. And you can close all of them at once by clicking Close All. 

Use “local” menus 

Most QuickBooks windows provide ways for you to take a related action. But most also offer “local” menus, or right-click menus. Open an invoice form to see how this works (Customers | Customer Center | Transactions | Invoices). Right click in the header of the invoice. Your menu options here include: 

• Duplicate Invoice 
• Memorize Invoice 

• Transaction History, and 
• Receive Payments. 

You’ll also find these commands and more in the toolbar at the top of the window.  

Practice with a QuickBooks sample file 

Before you start entering real data in QuickBooks, or if you’ve already done so and you want to try out a new feature without risking an error, use one of QuickBooks’ sample files. That’s why they’re there. 

You can open one of these when you’re loading QuickBooks. You’ll see a window labeled No Company Open. Click the arrow in the box on the lower right that says Open a sample file. You can choose between a product- and service-based business. 

Once you’re in QuickBooks, you can switch back and forth between your company file and a sample file by opening the File menu. Click Open Previous Company and select from the list. It should be obvious, but be sure you’re in the correct QuickBooks file before doing anything. 

How’s It Going? 

If you’ve been using QuickBooks for a while, how are you doing with it? Are you struggling with any functions? Feeling like you’re not using as much of the software as you should? Thinking that you’re outgrowing it and need to move up to a more senior version? Or are you having a hard time upgrading to QuickBooks 2023? We can help in all of these situations. Contact us, and we can set up a meeting or a series of them to make your accounting experience more productive and effective, and faster.  

Many taxpayers prefer to care for ill or disabled family members in their homes as opposed to placing them in nursing homes, but doing this can be expensive, time-consuming, and exhausting. The government also recognizes home care as a means of reducing the government’s costs in terms of caring for individuals who otherwise would be institutionalized (because they require the type of care that is normally provided in a hospital, nursing facility, or intermediate care facility). 

To promote home care and reduce the government’s institutional care expenses, Medicaid (through state agencies) pays home caregivers a small amount of compensation, referred to as a Medicaid waiver payment, to care for an individual in the care provider’s home. 

Originally the IRS took the position that these payments were taxable income to the caregiver. Back in 2014, the IRS changed its position and announced that, if the care met certain requirements, the compensation would be excludable and treated in the same manner as excludable difficulty-of-care payments under the foster care payments rule. This is the case even when the caregiver and the individual being cared for are related. 

The compensation exclusion applies if the following requirements are met: 

The compensation must be required due to a physical, mental, or emotional handicap with respect to which the State has determined that there is a need for additional compensation. 

The care must be provided in the care provider’s home. The “provider’s home” may be the care recipient’s home if the care provider resides there and regularly performs the routines of the provider’s private life, such as sharing meals and holidays with family. In contrast a care provider who sleeps at the care recipient’s home several nights a week but on weekends and holidays resides with his or her own family in a separate home would not be providing the care in the care provider’s home and would not qualify to exclude the Medicaid waiver payments received.  

The payments must be designated as compensation for qualified foster care or difficulty of care. 

To be excludable, the care payments are limited to a maximum of five individuals aged 19 and older or ten individuals aged 18 and younger.  

Since these payments are treated the same as qualified foster care difficulty-of-care payments, and since compensation for qualified foster care payments is mandatorily excluded, Medicaid waiver payments are also mandatorily excluded. That is, the care provider receiving these payments may not choose to include them in income. 

When the IRS originally ruled that the compensation was excludable from income that meant it was no longer earned income and thus lower-income caregivers who were previously able to qualify for the earned income tax credit (EITC) based on the compensation would no longer be eligible for EITC. 

The EITC is a refundable federal tax credit for lower-income taxpayers with earned income. The amount of credit is based on income and increases based on the number of children that the taxpayer has (qualified children include those under age 19 and full-time students under the age of 24; there is no age limit when the child is permanently and totally disabled). 

Lucky for all Medicaid waiver payment recipients, one recipient took the IRS to Tax Court over the earned income issue. The taxpayers in that court case received payments under a state Medicaid waiver program for providing care to their adult disabled children in the family home and excluded the Medicaid waiver payments from income but still treated them as earned income when computing the EITC, disregarding the IRS’s position that excluded payments were no longer earned income. The IRS subsequently disallowed the credit, and the taxpayers filed a timely Tax Court petition. 

The Tax Court held that the IRS could not reclassify the taxpayer’s Medicaid waiver payment to remove a statutory tax benefit provided by Congress. The IRS subsequently conceded to the court ruling so that even though the compensation is excluded from income it still retains it character as earned income and is to be used to determine the EITC if a taxpayer otherwise qualifies. 

As you can see, the impact of the exclusion can be quite different depending upon your circumstances. If you are receiving Medicaid waiver payments and have not yet dealt with the exclusion, please call this office to see how excluding these payments might affect you. 

If you had to make a list of all the things that most business owners hate, taking care of accounting and other financial matters is probably right at the top. 

Yet at the same time, a lot of those same business owners are struggling. Maybe they had a financial goal that they fell significantly short of. Maybe they tried to release a new product or service and it underperformed. 

Either way, much of this can be changed by returning to those records and making sure that they’re as accurate and as up-to-date as possible. 

In no uncertain terms: 2022 is over. We’re well into the new year and if you’re still trying to get your books closed from last year, you’ve got a major problem on your hands. 

Thankfully, all hope is not lost. There is a way that you can get caught up on things to make sure you’re on the right path from a financial point of view. You just may have to shift the way you’re used to thinking about what constitutes quality bookkeeping, to begin with. 

The Benefits of Proper Bookkeeping: Breaking Things Down 

One crucial thing to remember is that getting your books together for 2022 is about more than just retroactive financial maintenance. It can directly impact your business and its ability to function in the coming year, too. 

If your records aren’t up-to-date, you can never really be certain where you stand financially. You could have a much, much more positive impression regarding how things are going compared to the reality of the situation. This is especially true if yours is a business that experiences seasonal fluctuations in terms of the income you’re bringing in and the work you’re doing for clients. 

Speaking of that, without up-to-date records you also have no true idea of what you worked last year at all. This is about more than just figuring out how much money is sitting in a bank account somewhere. Knowing how much you’re working can help uncover trends and patterns that you likely would have missed. You can see who your biggest clients are, for example, and the ones that you absolutely want to hang onto. You can also see if you need to diversify your client base to avoid putting “all of your eggs in one basket.” 

Up-to-date records can also help shed more visibility into the parts of your business that are working and, more importantly, which ones aren’t. If you started offering a new product or service in 2022, for example, it stands to reason that you would want to know as much about its performance as possible. The same is true if you’ve expanded your operations in a way that maybe isn’t generating as much money as possible. That way, you can double down on what is working and get rid of what isn’t as soon as you can in 2023. Without this type of insight, you’re really only making decisions on little more than gut instinct. 

Finally, it’s likely that you’ve set out goals for yourself in terms of performance for the new year. They may not be achievable with all the processes and best practices you currently have in place, though. You may need to change to reach those goals and if that is the case, you need to know which direction you should be pivoting towards. 

All of this is to say that you are truly doing yourself a massive disservice if your books and other essential records are not up-to-date. Again, these types of records are more than just a “necessary evil” or a “frustrating cost of doing business.” For your business to remain healthy and grow, you need the insight and information contained in these records to stay informed. 

That’s why, if you are looking for a single step you can take to help improve your success, it’s this one. Spend the time to get your records up-to-date. Make sure the information contained in them is accurate. Put a process in place to help make sure those books stay accurate and, by all means, use that information in any way that you can in the future. 

Truly, you would be surprised by just how much easier it is to plan and remain successful once you have done precisely that. 

The Importance of Working With a Professional 

If all of the above sounds like it is equal parts time-consuming and frustrating, that’s because it largely is. But it’s still one of the most important things that you can do to build a foundation of financial success for your organization – and it’s also a road that you don’t have to travel down alone. 

Especially in the early days of a business, it’s natural for entrepreneurs to hang onto that “can-do spirit” and try to handle everything themselves. In a lot of ways, this is the mentality that got you so far in the first place. But you’re an expert in your industry – you’re not necessarily an expert in bookkeeping, nor can you be expected to be. 

At the same time, you don’t want to take chances and do a poor job because it almost always guarantees that you’ll be making decisions based on inaccurate financials. Not only could this potentially inhibit growth, but it could actually cause the types of cash flow issues that cause many organizations to prematurely close their doors every year. 

All of this is to say that once you realize the task is too much for you to handle, don’t be shy about bringing in a financial professional. At the very least, they can free up as much of your valuable time to focus on other daily aspects of your business – which for many is the most important benefit of all. 

If you’d like to find out more information about why quality bookkeeping matters for small business success, or if you’d just like to talk about your needs with a professional in more detail, please don’t hesitate to contact us today. 

Emerging technologies, such as artificial intelligence, machine learning, data analytics and biotechnology, greatly transform society and reshape the global economy. However, these technologies also come with a significant challenge regarding ethical and social implications. Global collaboration by governments, regulators and industry leaders can help ensure that emerging technologies are developed and deployed responsibly.  

Challenges of Regulating Emerging Technologies 

Emerging technologies have led to complex situations that traditional governments might find difficult to manage. For instance, today’s advanced technologies also come with new forms of crime. This requires law enforcement and public safety organizations to keep up with new and innovative crimes. Today’s governments face challenges that affect the development of effective digital laws.  

One of these challenges is the independence of technology from physical state territories. The interconnection of technology devices over the internet has no boundaries. This makes it impossible for any country to regulate all aspects of the technologies. Secondly, all states are not the same, and each enhances its technology-related laws according to its capabilities. While strong economies can afford robust IT infrastructure, other countries do not have the technical capacity.  

Other factors that complicate technology regulation include the ability of major technology companies to bypass established regulations. Additionally, states are consumers of technology products and services developed by private corporations. Since they are not the innovators, policymakers and regulators do not understand the intricate technology systems that affect the regulatory decisions that must be made.  

The above mentioned are only a few of the challenges that make technology regulation complicated. Still, there is a growing need for digital governance and a digital constitution.  

Why Global Collaboration is Crucial in Regulating Emerging Technologies  

1. Address ethical and social issues – significant ethical and societal issues, like data privacy and security, are brought up by emerging technology. However, international cooperation can help ensure coordinated and efficient responses to these issues. 
2. Growing competition for technological dominance – political, societal and economic rivalries are driving technological dominance. Increased competition for elements of technology supremacy can only result in conflict, obstructing technology’s ethical use.  
3. Technology diffusing globally – in most cases, new technologies are available for adoption anywhere in the world. Thus, international regulatory frameworks must be coordinated to prevent competing or incompatible laws. 
4. Harmonizing standards – global cooperation can assist in harmonizing standards and laws for new technology, making it simpler for businesses to comply and lowering entry barriers for new players. 
5. Promote inclusivity – emerging technologies have the potential to make existing social and economic inequalities even worse. Collaboration on a global scale can ensure that these technologies are usable by everyone and do not reinforce or introduce new forms of exclusion. 
6. Enhance innovation – collaboration across borders can facilitate the exchange of knowledge, ideas and best practices, leading to more innovation and faster technological advancement. 
7. Avoid existential risks – technology can potentially introduce threats that endanger life globally. Such risks might include nanotechnology weapons and engineered pandemics. However, developing strategic global legal frameworks that identify potential risks can help avoid the proliferation of dangerous and harmful technologies.  

Existing Efforts for Global Collaboration in Regulating Emerging Technologies 

There are numerous initiatives for international cooperation in regulating emerging technologies. For example, the Global Partnership on Artificial Intelligence (GPAI) brings together governments and business executives from across the world. Its goal is to ensure artificial intelligence (AI) is developed and deployed responsibly in a human-centric manner. GPAI’s main focus is on responsible AI, data governance, the future of work, and innovation and commercialization.   

The Organization for Economic Cooperation and Development (OECD) is another international organization where governments work together to solve common challenges and develop global standards. A good example is their recommendation on responsible innovation in neurotechnology, adopted by the OECD Council in December 2019. Other organizations working toward promoting global collaboration and coordination on emerging technology issues include the World Economic Forum (WEF) and the United Nations.  

Unfortunately, there is still a lot of work to be done. Continued global cooperation is crucial to ensure that emerging technologies are created and used to benefit society. Currently, there is no global agreement on technology regulation; instead, regulators take different and sometimes conflicting standpoints.  

Conclusion  

The pace and impact of emerging technologies are likely to keep increasing. Although these developments improve human experiences, the potential for these technologies to disrupt social, economic and political systems worldwide means that it is essential for governments, private companies and civil organizations to work together to ensure that they are developed responsibly. 

The Roth IRA is a retirement savings account in which you invest only after-tax dollars. Subsequently, all earnings grow tax-free and may be withdrawn tax-free. However, there are limits to who can contribute and how much they can contribute to a Roth IRA. 

Federal rules restrict direct contributions to a Roth IRA for high-income earners. In 2023, a single, head of household, or married, filing separately tax filer may contribute up to $6,500 if under age 50; $7,500 if 50 or older. However, if the investor has a modified adjusted gross income (MAGI) above $138,000, he is permitted only limited and phased out contributions up to a total annual income of $153,000, above which he cannot contribute to a Roth. Limited contributions for an investor who is married filing jointly begins at $218,000 in annual income and phases out at $228,000.

However, there is a way to work around these contribution rules using a Roth IRA conversion. To optimize this strategy, investors may be able to conduct a Mega Backdoor conversion from their employer-sponsored retirement plan to a Roth. 

The Mega Backdoor Roth strategy is suitable in a handful of circumstances:  

• When you’ll be able to max out your employer plan contribution
• When your earned income is too high to contribute to a separate Roth IRA
• If you can save more than the 401(k) and IRA combined limits in one year  

Employer Rules 

To deploy this strategy, the investor must check with his retirement plan administrator to ensure that the plan allows for post-tax contributions and in-service distributions. If so, the investor should first max out his income-deferred contributions to the 401(k). In 2023, the maximum 401(k) contribution limit is $22,500; $30,000 if age 50 and older.  

However, he may invest a maximum of $66,000 or $73,500 (age 50 and up) in his 401(k) for the year, which is the combined total for employer and employee contributions. For example, let’s say a 52-year-old employee earns $200,000 and defers 15 percent ($30,000) of his pre-tax income. His employer kicks in another dollar-for-dollar match up to 4 percent of his salary ($8,000). With the deferred total at $38,000, the employee could pitch in another $28,000 in post-tax contributions to his after-tax 401(k) account – to reach the maximum total of $66,000.  

The next step is for the employee to take advantage of in-service distributions by immediately rolling over his contributions from the 401(k) to an in-plan Roth option or a separate Roth IRA – before any earnings accrue (to avoid taxes on earnings). 

Tax Notes 

Once the after-tax funds are converted to the Roth IRA, the money grows tax-free, and the investor can withdraw it as tax-free income in retirement. There also is no RMD requirement for Roth IRA funds at any age. However, note that if the funds are converted to an in-plan Roth option, earnings are subject to a penalty if withdrawn before age 59½. If the funds are converted to a separate Roth IRA, tax-free withdrawals are only available penalty-free five years after each corresponding rollover is conducted.  

The Mega Backdoor Roth strategy is appropriate for high earners looking to minimize taxes on both their current income and their long-term retirement investments. 

Most people volunteer out of a sense of altruism, duty or purpose – not to get a tax deduction from Uncle Sam. At the same time, if your good deeds could also result in lower taxes, why not? Theoretically, this would free up more time to volunteer or let you make a charitable donation, a win-win for you and the cause you care about.

What Volunteering Expenses Can You Deduct?

As with all tax rules and regulations, the devil is in the details. If you itemize your tax deductions, you might be eligible for some valuable deductions. Any expenses deducted must directly relate to the charity where you volunteer, and you can’t have been reimbursed for them. Lastly, you will need to be taking the itemized deductions and not the standard deduction.

Below, we will look at the specifics of what you can and cannot deduct.

Time Spent Volunteering

Unfortunately, not. Regardless of how much time you spend volunteering, those hours have no economic value in terms of a tax deduction. Now, you may be saying: My time when I serve a client is billed out at $250 per hour. No matter, in this case the IRS simply does not care. When it comes to donating your time as a volunteer, the only thing you get in return is a warm fuzzy feeling for doing a good thing.

Volunteering Expenses

Often, organizations ask volunteers to provide their own supplies and materials to carry out the work. Think things like office supplies, for example. In other cases, volunteers will need to provide their own safety gear or a special uniform. All these types of expenses are deductible if you are paying for them out of your pocket and not getting reimbursed.

Cost of Commuting

Driving your own car as part of your volunteer work also can yield a charitable deduction. Under section 170, the IRS provides a standard rate of $0.14 per mile driven in 2022 and 2023. Alternatively, you can deduct the actual costs of fuel (i.e., gas or diesel) and tolls. Once again, it is deductible only if you are not reimbursed for the expenses.

Travel Expenses

Travel expenses related to volunteering also can be deductible. To qualify, the expenses must be directly related to the volunteer work; not have been reimbursed; and reasonable. The definition of reasonable is of course open to interpretation and relative depending on the circumstances; however, taking a private plane or flying first class is unreasonable in the eyes of the IRS.

You also can deduct the cost of meals needed while volunteering at the full cost (100 percent). The 50 percent business limitations do not apply.

Fundraising Costs

Hosting a fundraising event can cost big bucks. For individuals generous enough to host such an event, it is completely legitimate to deduct your unreimbursed expenses for putting on the event.

Recordkeeping

Like any tax deduction for personal or business reasons, keeping good records is key. Keep track of mileage with a daily logbook, keep receipts and note what, where, when, who and why for each volunteer-related expense. This applies to any of the items above, from simple mileage to hosting an entire fundraising event.

Conclusion

Volunteering is a great way to give back to your community or a cause you care about. It also can be a source of additional tax deductions, which will put more money in your pocket to spend or use for charitable purposes as you see fit. If volunteering is part of you and your family’s life, consider the guidelines outlined above and talk to your tax professional about your individual situation.