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July 7, 2010

July 2010 Tax Tip

How to Make Your Next Vacation Tax Deductible while Saving the World

As business tends to slow down in the summer, sometimes the best investment you can make is in yourself and a vacation to recharge for the upcoming year.  And like most business investments, your vacation can be tax deductible – if you plan right. As we wrote about last year, you can deduct your vacation expenses if you’re able to tie them to a business related function such as a convention or trade show. However a lesser known, and more altruistic strategy, is to take a “Volunteer Vacation” and connect your trip to a charity function.

The trick according to IRS Publication 526, which addresses what volunteers can and cannot deduct, is to connect with a qualified charity that’s willing to give you an assigned task “in a genuine and substantial sense throughout the trip.” And since your travel expenses are tax deductible (though not your time), you’re able to get a much better tax result if you volunteer for groups that operate on the other side of the country (or world). To find a list of qualified charities, check out IRS Publication 78.

For example, if you were to volunteer at a local Habitat for Humanity, you would be able to deduct the travel expenses to get to the build site, either in real cost (taxi or bus) or at a rate of 14 cents per mile. However, if you were to travel to Feira Nova, Brazil to take part in one of Habitat for Humanity’s Global Village Work Trips, your airfare, taxi, meals and hotel are typically deductible.

Another example is to participate in a fund raising event for a qualified organization such as Charity Treks, which sponsors a four day cycling trip from Burlington, Vermont to Portland Maine to raise money for the UCLA AIDS Institute and the Emory Vaccine Center. Event participants, who enjoy a week long cycling trip through some of the United States’ most beautiful terrain, have raised more than $750,000 in the past eight years while writing off their airfare, hotel accommodations, registration fees and meals.

The key is to be participating in the charitable event for a substantial portion of the trip. If you were travel to Mexico to teach English, but only taught for four hours for one day and traveled the rest of your stay, you would not be able to deduct the trip costs. Another point to remember is not to make your meals or accommodations too lavish, or the IRS may disallow them. For more specific guidance on what the IRS considers lavish you can look up the “per diem” rules in IRS Publication 1542. The charitable travel deductions are claimed as “cash contributions” on the Schedule A, and you may want to include statements providing details of your expenses just in case. To find opportunities Google “Deductible Volunteer Vacations. You can also contact an organization directly to inquire about Volunteer Vacations, though it’s best to stick with non-profit organizations.

Though the tax benefits of a Volunteer Vacation can be substantial, the experience of such a trip often pays dividends for a lifetime, says Brandolon Barnett, Director of Program Development for Global Aware, an 501 (c)(3) Non-Profit that organizes short-term international volunteer vacations.

“The impetus on these types of vacations isn’t on luxury, it’s on learning about the challenges the local community faces and about real people and a real culture,” says Barnett. “It’s a profound experience. Normal vacations, you relax, but those experiences don’t often become stories that stay with you for life. You really walk away from these types of vacations with insights into your own life, it’s a very authentic experience.”

And with the right planning, it’s often tax deductible also.

Volunteer Vacation Resources:

Charity Treks – 501 (c)(3) Non-Profit that organizes cross-country cycling trips to raise money for AIDS research.

Habitat for Humanity Global Village Program – Habitat for Humanity’s international program, builds affordable housing in needy international communities.

Global Aware – 501 (c)(3) Non-Profit that organizes week-long international volunteer vacations that focus on community improvement while also focusing on cultural immersion.

Sierra Club – Organized service trips to some of the country’s most amazing national parks to build and maintain trails, repair meadows, and assist archaeologists among other tasks.

IRS Publication 78Online database of qualifying charitable organizations.

As business tends to slow down in the summer, sometimes the best investment you can make is in yourself and a vacation to recharge for the upcoming year. And like most business investments, your vacation can be tax deductable – if you plan right. As we wrote about last year, you can deduct your vacation expenses if you’re able to tie them to a business related function such as a convention or tradeshow. However a lesser known, and more altruistic strategy, is to take a “Volunteer Vacation” and connect your trip to a charity function.

The trick, according to IRS Publication 526, which explains what volunteers can and cannot deduct, is to connect with a qualified charity that’s willing to give you an assigned task “in a genuine and substantial sense throughout the trip.” And since your travel expenses are tax deductable (though not your time), you’re able to get a much better tax result if you volunteer for groups that operate on the other side of the country or world.

For example, if you were to volunteer at a local Habitat for Humanity, you would be able to deduct the travel expenses to get to the build site, either in real cost (taxi or bus) or at a rate of 14 cents per mile. However, if you were to travel to Feira Nova, Brazil to take part in one of Habitat for Humanity’s Global Village Work Trips, your airfare, taxi, meals and hotel are typically deductable.

http://www.habitat.org/cd/gv/trip_desc.aspx?type=1&code=GV10523

Another example is to participate in a fund raising event for a qualified organization such as Charity Treks, which sponsors a four day cycling trip from Burlington, Vermont to Portland Maine to raise money for the UCLA AIDS Institute and the Emory Vaccine Center. Event participants, who enjoy a weeklong bike trip through some of the United States most beautiful terrain, have raised more than $750,000 in the past eight years while writing off their airfare, hotel accommodations, registration fees and meals.

The key is to be participating in the charitable event for a substantial portion of the trip. If you were travel to Mexico to teach English, but only taught for four hours for one day and traveled the rest of your weeklong stay, you would not be able to deduct that trip. Another point to remember is not to make your meals or accommodations too lavish, or the IRS may disallow them. For more specific guidance on what the IRS considers lavish you can look up the “per diem” rules in IRS Publication 1542. The charitable travel deductions are claimed as “cash contributions” on the Schedule A, and you may want to include statements providing details of your expenses just in case.

Though the tax benefits of a Volunteer Vacation can be substantial, the experience of such a trip often pays dividends for a lifetime, says Brandolon Barnett, Director of Program Development for Global Aware, an 501 (c)(3) Non-Profit that organizes short-term international volunteer vacations.

“The impetus on these types of vacations isn’t on luxury, it’s on learning about the challenges the local community faces and about real people and a real culture,” says Barnett. “It’s a profound experience. Normal vacations, you relax, but those experiences don’t often become stories that stay with you for life. You really walk away from these types of vacations with insights into your own life, it’s a very authentic experience.”

And with the right planning, it’s often tax deductable also.

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