Pro bono services is not the same thing as volunteer service. Although there are some similarities, they differ in fundamental ways. This is especially true when it comes to taxes.
Pro Bono Services
You may hear the phrase “pro bono” when dealing with lawyers. The services are provided for free or at a small cost to help a cause or benefit the public. According to the American Bar Association, attorneys are encouraged to commit to 50 hours of pro-bono legal work per year. Some state bar associations also require lawyers to report their pro-bono hours and activities on a regular basis in order to keep their license to practice.
It’s not something that you do to help your neighbor out for free. And it isn’t running the Girl Scout Cookie Station for an afternoon. Tax-wise, pro bono service must be donated to charities or other causes. The IRS has different rules for pro bono, discounted or free services and volunteer work. The IRS has separate guidelines for determining how to deduct costs and expenses associated with pro bono services.
Sometimes pro bono services can be offered “at cost.” A professional consultant, for example, may offer his expertise and time but request payment to cover travel expenses. Travel expenses may be deducted by volunteers for charitable organizations, but there are more restrictions on this and the percentage rate is lower than true pro bono services.
Volunteer Work
Volunteers offer their time, expertise, and knowledge for free. Volunteer services are classified by the IRS into two categories:
- Volunteer Services that are Not GAAP Compliant: These services cannot be deducted from tax for the person who donates his time.
- Volunteer GAAP Services: Professional services such as GAAP or volunteer services can sometimes be tax-deductible.
GAAP stands for “generally recognized accounting principles.” These principles include the most commonly used practices and rules in financial reporting for business income. It is important to make this distinction due to the tax treatment for volunteered services and time. The Internal Revenue Service normally does not allow non GAAP taxpayers, or those who are not business owners, to claim tax deductions on the value of their volunteer time. However, if they incur expenses while volunteering, then these can be deducted as charitable contributions. This deduction is only available if you itemize your expenses, not if you claim the standard deduction.
The Big Difference
Pro bono services are usually offered as professional services. Normally, an individual, a business or an organization would have to compensate the donor for their work. Tax returns for businesses can deduct at least a portion of the tangible costs associated with pro bono work.
Volunteer services are provided by individuals who don’t normally charge for the time or skills they offer.
