volunteer

If you are a volunteer worker for a charity, you should be aware that your generosity may entitle you to some tax breaks. Although no tax deduction is allowed for the value of services you perform for a charitable organization, some deductions are permitted for out-ofpocket costs you incur while performing the services. This includes items such as:

  • Away-from-home travel expenses while performing services for a charity (out-of-pocket round-trip travel cost, taxi fares and other costs of transportation between the airport or station and hotel, plus lodging and meals).
  • If you use your car while performing services for a charitable organization you may deduct a flat 14¢ per mile for charitable use of your car.

If you are charitably inclined to donate money, there are taxadvantaged ways to make a gift to a favorite charity while enjoying the income from that gift for your lifetime. Here is a brief overview of the major types of deferred charitable gifts.

(1) In a charitable remainder unitrust (CRUT), a separate fund is set up to hold your gift until your death, at which time it will become the charity's property. You decide at the outset on the annual percentage of the fair market value of the assets that you are to receive as income for life. For example, you may make a $50,000 gift to a CRUT and specify an 8% return. Your annual income will be $4,000. If the value of the CRUT assets drops in the next year to only $40,000, your income that year will be $3,200. If the value goes up to $60,000 in the following year, your income that year will be $4,800.

(2) A charitable remainder annuity trust (CRAT) provides an annual payment of a fixed dollar amount for your lifetime. This differs from a CRUT, which provides a fixed percentage of the asset value.

For example, say that you make a $50,000 gift to a CRAT that will pay you $4,000 a year for life, after which the trust principal passes to the charity. If the CRAT earns less than $4,000 a year, it will sell assets to make up the difference. If it earns more than $4,000, it will pay you $4,000 and add the excess to the trust principal. Your income tax deduction from a gift to a CRAT is based on your age and the amount of your annual payment.

As a rule of thumb, the older you are, the larger the deduction, and the greater the annual payment, the smaller the deduction.

(3) In a charitable gift annuity, you make a gift to charity in exchange for a guaranteed income for life. This is very much like buying an annuity in the commercial marketplace, except that you get an immediate charitable deduction equal to the excess of what you paid over what the annuity is worth, based on IRS tables.

A portion of each year's payment is tax-free, because the tax law allows you to recover your original payment over your life expectancy. In the year when you buy the annuity, you get a charitable deduction for a portion of the purchase price, determined from an IRS table geared to your age.

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