“My NPO’s mission is to train health workers in Guatemala. May we pay airline costs for volunteer teachers? If those teachers also give a donation to the organization which is roughly the amount of their airfare, may we issue them a receipt for tax purposes?”
Travel is often a gray area that combines personal pleasure and business. Before we answer Kate’s question, let’s see what the IRS has to say about travel expenses.
The IRS defines business-related travel in IRS Publication 463, Travel, Gift and Car Expenses:
For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have to be required to be considered necessary.
While publication 463 is oriented toward expenses of for-profit companies, the concepts are also applicable to nonprofit organization employees and volunteers.
Publication 463 also states regarding travel within the US:
You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.
Publication 463 lists a few more caveats for travel outside the United States, but the idea is the same. The IRS wants you to distinguish between business and personal travel and only count business travel as a business expense.
Travel Qualifying for a Charitable Contribution Deduction
We can also gain insights into travel for nonprofit organizations by referring to IRS Publication 526, Charitable Contributions. The section in Publication 526 on travel expense states:
Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. This applies whether you pay the expenses directly or indirectly. You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses.
Sound familiar? This language is similar to the wording in Publication 463 on business travel.
Publication 526 goes on to clarify
The deduction for travel expenses won’t be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. However, if you have only nominal duties, or if for significant parts of the trip you don’t have any duties, you can’t deduct your travel expenses.
Notice a theme developing here? The IRS wants you to distinguish between travel for the business of the nonprofit organization and travel for personal purposes. If you itemize deductions on your personal tax return, you can only deduct unreimbursed travel expenses incurred for legitimate organization business.
Paying for Travel
Assuming travel is for the organization’s work in carrying out its programs, we see a few ways travel expense scenarios could play out:
The organization foots the bill for travel…
- By reimbursing volunteers for out-of-pocket travel costs – The volunteers would need to provide a detailed accounting of their travel expenses under the IRS’ accountable plan rules. To be an accountable plan
- Expenses must have a business connection
- Travelers must adequately account for expenses within a reasonable period of time.
- Travelers must return any excess reimbursement or allowance within a reasonable period of time.
- By paying for the volunteers’ travel directly.
In either case, the organization should ensure that travel expenses are for purposes of carrying out the organization’s programs. Criteria for organization travel should be outlined in the organization’s Travel Policies and Procedures.
Paying for personal travel of volunteers or employees would be considered private benefit or inurement and could subject the organization to excise taxes or even revocation of exempt status. In any event, it would be not be good stewardship of the organization’s resources.
One more note – The IRS requires amounts paid by an organization under a nonaccountable plan (travel that does not meet the three criteria above) to be reported as W-2 wages for the traveler.
The volunteer pays for the travel…
- By incurring out-of-pocket travel costs. The traveler may be able to deduct the unreimbursed expenses as an itemized deduction for income tax purposes if the travel qualifies for a charitable contribution deduction per the requirements outlined in IRS Publication 526, Charitable Contributions.
- By making a donation to the organization to cover the travel costs. This is paying for the travel expenses indirectly as described above per Publication 526. Again the traveler may be able to deduct the donation as an itemized deduction for income tax purposes.
Whether or not a taxpayer can deduct travel expenses paid directly or paid indirectly by making a donation to a charitable organization depends on whether the travel meets IRS criteria to be deductible and the taxpayer’s individual tax circumstances.
Back to Peten Health’s travel…
Based on the brief information provided, it sounds like airfare paid on behalf of volunteer teachers to travel to Guatemala for purposes of training health workers is an “ordinary and necessary” expense of carrying out Peten Health’s program. No element of personal travel is described. Even though the volunteers may enjoy the trip and their work, we assume they will be engaged in a “genuine and substantial” way in teaching local health workers while in Guatemala. If this is the case, the airfare should be recorded as an organization expense and donations made by the volunteers to reimburse those travel costs should be gift receipted as a charitable donation.
Thanks, Kate, for a great question!