You can help your friends by keeping them updated on rules for reporting to the IRS. If volunteers ask for a receipt for their services, be polite but firm in explaining that there is no charitable tax deduction for donated services. If they press you for a receipt, instead give them a thank-you letter describing-but not valuing-the services provided. Avoid referring to the services as a "contribution" or "donation" or anything else that would suggest a charitable deduction might be appropriate. If necessary, refer them to IRS Publication 526, which states this rule. While the rule is clear, there is widespread misunderstanding about it, so here are some examples to reinforce the point:
A masseur donates a certificate for a free massage. You auction the certificate for $100 at your fundraising event. The masseur gets no tax deduction.
A lawyer negotiates a lease for your organization's new office space. You receive $1,500 worth of legal services for free, but the lawyer gets no tax deduction.
Although volunteers can't deduct their services, be sure they know they can deduct out-of-pocket expenses connected with their volunteer service.
The IRS has recently increased the mileage rate volunteers can use to compute deductions for using their own cars while volunteering. For tax years beginning after 1997, the mileage rate for use of a passenger car has been increased to 14 cents per mile. The rate should be indexed for inflation beginning in 1999. (Toward the end of each calendar year, the IRS considers inflation and makes adjustments. The new amounts, which are effective for the following calendar year, are published in a Revenue Procedure.) Volunteers can also deduct parking fees and tolls. When away from home in the course of performing volunteer service, they can deduct reasonable expenses for transportation, meals, and lodging. But no deduction is allowed if there is a significant element of personal pleasure, recreation, or vacation in the travel. Some examples:
A church member attends a church convention as a member of the church, rather than as a designated representative of the church. This is considered a personal trip and is not deductible.
Volunteers work on a charity-sponsored archaeological dig for several hours each morning, with the rest of the day free for recreation and sightseeing. The volunteers aren't allowed a deduction even if they work very hard during those few hours.