I had a client ask if he can deduct the cost of a new computer because he does volunteer work with it for his congregation. This is a good "Did You Know." This is the answer I gave to him:
"Out-of-pocket expenses are not the same as deducting ordinary and necessary business expenses for your job. Ordinary and necessary business expenses include the cost of depreciation on capital assets used in your business. Out-of-pocket expenses for charity, on the other hand, do not include depreciation on capital assets used to do volunteer work. This rule is made clear in IRS Publication 526, page 5, where in regards to using your car for charity, it says “you cannot deduct…depreciation…” Thus, the cost of gas and oil, or the standard mileage rate for using your car for charity volunteer work is deductible, but not the cost of depreciation on that car. Likewise, the cost of buying paper, toner for your printer, or other incidental supplies for doing volunteer work for your congregation is deductible, but not the cost of depreciating your computer."
I bring this up because I have seen other tax preparers deduct the cost of buying a computer for charity work as a charitable contribution, which is wrong. Another mistake tax preparers make is only take 50% of the cost of meals for charity. 100% of the cost of reasonable meals is deductible for volunteer charity work. The reason is the 50% limit is a limitation on deductible business expenses under Section 274(n). That code section does not apply to out-of-pocket charitable expenses.
"Out-of-pocket expenses are not the same as deducting ordinary and necessary business expenses for your job. Ordinary and necessary business expenses include the cost of depreciation on capital assets used in your business. Out-of-pocket expenses for charity, on the other hand, do not include depreciation on capital assets used to do volunteer work. This rule is made clear in IRS Publication 526, page 5, where in regards to using your car for charity, it says “you cannot deduct…depreciation…” Thus, the cost of gas and oil, or the standard mileage rate for using your car for charity volunteer work is deductible, but not the cost of depreciation on that car. Likewise, the cost of buying paper, toner for your printer, or other incidental supplies for doing volunteer work for your congregation is deductible, but not the cost of depreciating your computer."
I bring this up because I have seen other tax preparers deduct the cost of buying a computer for charity work as a charitable contribution, which is wrong. Another mistake tax preparers make is only take 50% of the cost of meals for charity. 100% of the cost of reasonable meals is deductible for volunteer charity work. The reason is the 50% limit is a limitation on deductible business expenses under Section 274(n). That code section does not apply to out-of-pocket charitable expenses.
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