Don't Mess With Taxes

What's the first Christmas carol you remember hearing as a child? OK, other than Santa Claus is Coming to Town. Everybody remembers that song because every parent uses it to keep the kiddos in line until Dec. 25.

My childhood favorite was the Little Drummer Boy.

Pentatonix, the a cappella quintet that won NBC's third season of The Sing-Off,
talks to Billboard about their new Christmas classic.

Maybe it was because as a youngster, I used my fingers as drumsticks to rap along with all songs, seasonal and beyond. I still do; my steering wheel takes a pounding on my hour-long drives to and from my mom's house!

And it probably was because the song's story is told from a child's point of view, making it relatable to other kids.

Regardless of the reason, I loved the song when I was a kid. As I grew up and came to fully realize its message, I appreciate more.

The tale of the young drummer who had no grand gift of frankincense, gold or myrrh, but only his love and musical skill to share, also is a perfect pick for the Christmas Tax Tip Tunes list.

The nameless young boy reminds us that that giving of ourselves, our time and talents, is often the best gift. And yes, there are some tax implications.

Volunteering's tax benefits: Millions of Americans works as volunteers at their favorite charities, not only during the holidays, but year-round.

The for-free services range from answering phones to stuffing envelopes to driving people to doctor's appointments to delivering meals to the home-bound and toys at Christmas time to children who might otherwise find nothing under their trees.

For all the work they so willingly donate to good, Internal Revenue Service approved organizations, these volunteers get hearty thanks from the groups, the recipients of services and Uncle Sam.

They don't, however, get a tax deduction for their time or the value of the services they provide.

Volunteer write-off rules: That's right. Time spent volunteering is not deductible.

That means that you, an accountant who volunteered to get your animal shelter's books in order, cannot deduct the fee you would have charged a paying client for a similar job.

But you do get to write off materials you purchased in connection with your volunteer service. In this case, the cost of the software program you bought for nonprofit's computer is deductible as a charitable gift.

So are other things you bought for the charity in connection with your volunteer work. In our example, this could be printer paper to make hard copies of the spreadsheet for the shelter's board. So are other office supplies you purchased to help you complete your volunteer task.

You can deduct these costs if:

• You aren't reimbursed by the charity.
• The costs are directly connected with the service you provided.
• You incurred these expenses only because of the services you donated.
• The costs were not for personal, living or family expenses.

In addition to supplies, other common volunteer expenses that qualify as deductible include:

• hosting a party or fundraiser for the organization,
• buying a required uniform, as well as the cost of keeping it clean, and
• telephone expenses.

Tracking your travel: Don't forget the driving you did for your volunteer effort. In many cases, you can deduct these transportation costs, too.

This could include the mileage to the office supply store to pick up the accounting software and other supplies.

You can deduct the miles you travel to benefit the charity at the standard rate of 14 cents per mile. Yes, that is substantially lower than the business, medical and moving rates. Those are adjusted annually for inflation, while the charitable miles deduction rate is set by Congress. So be sure to write your lawmakers and let them know of your dismay at this paltry level allowed for good works.

Every year, a Representative or Senator introduces a bill to also index the charity mileage amount to inflation. Every year it goes nowhere. But maybe 2014 will be the year that donated driving gets a better deduction rate.

But every cent helps, even those at 14 cents a mile, when you're looking to reduce your tax bill. So track the miles you travel for you good cause, as well as the other allowable costs of volunteering, and claim them donations on your Form 1040 Schedule A.

And thank you again for all your time and talent. Pa rum pum pum pum.

You also might find these items of interest:

• Deductions demand documentation
• Charitable donations and the tax collector
• Volunteering: Can the tax man giveth, too?
  (AW magazine, December 2007)