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Use your vacation to do something good -- and get a tax write-off

My five-year-old has big aspirations for her summer vacation: she wants to go to the Gulf and clean pelicans. She's not alone. The bleak pictures on the news have inspired many people to consider ways to make a difference beyond simply making a donation. Some will stay home, but some will travel to the source of the problem to help.

It's not a new idea. In the aftermath of the World Trade Center tragedy, thousands of volunteers headed to New York City to lend a hand. Similarly, clean-up crews traveled by the busload to New Orleans to provide assistance after Hurricane Katrina. Most recently, organized relief efforts brought water and much needed medical supplies to Haiti after the January 12 earthquake.

Of course, not all of us can afford to hop on a plane and head off to help. But there is one added financial incentive that may make a big difference in whether you stay or whether you go: a tax write off.
The value of your time spent volunteering for charitable activities is never deductible. This is true even if it takes time away from your job or business or if you can easily put a dollar amount on the cost of your services.

What may be deductible is the cost of out-of-pocket expenses relating to volunteering. To qualify, those expenses must be:

  1. not otherwise reimbursed;
  2. directly connected with the services you're performing;
  3. expenses you had only because of the services you performed; and
  4. not personal, living, or family expenses.

If you meet those criteria, one expense that is clearly deductible as a charitable expense is the cost of transportation. You can either deduct the actual costs of gas and maintenance for your automobile related to your services or you can claim the standard mileage rate (it remains at 14 cents a mile for charitable deductions). No matter whether you claim the actual costs or the standard mileage rate, you can deduct parking fees and tolls.This is true whether you drive to your local soup kitchen or thousands of miles away.

If you choose to travel thousands of miles away (or hundreds of miles), you can claim reasonable travel expenses while you are performing services for a charitable organization. This is true so long as the expenses are related to the services and not otherwise personal. Travel expenses would include the cost of getting to your location (air, rail, bus or car); taxi fares or other costs of transportation between the airport or station and your hotel; the cost of lodging and the cost of meals. If you are reimbursed for your expenses, you can only deduct the amount of your expenses which exceeds any reimbursements or payments made to you; if reimbursements or payments made to you exceed your expenses, the overage would be taxable.

While the focus should be on volunteer service, this doesn't mean you can't have a little bit of fun along the way. To the extent that you incur expenses that are personal (like that windsurfing outing that you just had to take), that doesn't disqualify your trip as deductible. You just can't deduct those personal expenses on your tax return.

However, one Jet-Ski trip too many might disqualify your trip as deductible. To qualify as deductible, a substantial portion of the trip should be dedicated to charitable purposes. Picking up an occasional tar ball as you get some sun in Florida doesn't count. If your services to the charitable organization are considered nominal compared to the scope of the trip, you cannot deduct your travel expenses.

When planning your trip, take steps to make sure that your travel expenses are reasonable. Remember, you're supposed to be focused on helping others, not yourself. That doesn't mean that you have to stay in the absolute cheapest accommodations on the island or fly on a discount airline. Your accommodations and meals should not be considered extravagant. A good rule of thumb is to consider how those you are helping would view your trip: would you feel comfortable having them see where you're sleeping and eating? If it feels like too much, it probably is.

One way to get the most out of your vacation is to consider a "vocation vacation." Increasingly popular, these organized trips allow you to volunteer your set of skills in interesting and different places for relatively long periods of time. Not every trip would qualify for purposes of the charitable deduction - the normal deductibility rules would still apply. You would, for example, need to volunteer your time with a qualified charity (you can search the IRS database to see if the organization qualifies here). However, so long as the trip otherwise qualifies, it makes no difference to the IRS whether you organize it yourself or depend on someone else to do it for you.

While the tax break is nice, in the end, you may find that it's not even about the money. Some taxpayers find the experience to be more valuable. Aspiring CPA Matt Bramanti (@mattbramanti) traveled with his parents to Louisiana in 1992 to help out after Hurricane Andrew. To this day, he remembers the trip and says it "made an impression."

Even with the tax break, not all of us can take time off to help out after a disaster. Don't forget that you can still take a deduction for out-of-pocket expenses when you volunteer in your hometown. You can deduct the cost of bus fare to go read to children at the local library or parking fees when you visit at the senior center.

And of course, if you aren't willing or able to volunteer your time to make a difference, you can still make a tax deductible contribution to the qualified charity of your choice. As a rule, Americans do that in spades. According to the Giving USA Foundation, in 2008, Americans donated $307.65 billion to charitable causes; about 75% of those contributions were given by individual donors. Every little bit counts.

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