Just because your employer operates as a nonprofit and is exempt from income tax doesn't mean you can deduct your work expenses as a charitable donation. You can still deduct job-related expenses on your tax return under the same guidelines used under for-profit employers, though the Internal Revenue Service does impose some restrictions that aren't applicable to charitable donation deductions. However, there are some instances when you can take a donation deduction for some of the costs you incur while providing services to a nonprofit employer.
Donation Deduction Rules
A deductible charitable donation only covers gifts you voluntarily make to tax-exempt organizations for which you don't expect to receive anything of equal value in return. As you incur out-of-pocket expenses at work, the employment relationship you have with the nonprofit makes it difficult to argue that your intention was purely charitable. Because you incur the expenses to perform your job duties and expect regular salary payments, you may have a difficult time convincing the IRS that you would've paid the expenses even if the nonprofit wasn't your employer.
Deducting Work Expenses
Maybe you won't save as much in tax with a job-related expense deduction as you would with a donation, but it's probably still worth seeing if it's beneficial. Because unreimbursed work expenses can only be reported as “Job Expenses and Certain Miscellaneous Deductions” on Schedule A, you'll need to itemize to take the write-off. The reason your deduction may be less is because this category of Schedule A expenses is reduced by 2 percent of your adjusted gross income before arriving at the deductible amount.
Forms 2106 and 2106-EZ
It is likely that you'll also need to file Form 2106 or the abbreviated version, Form 2106-EZ. If any of your work expenses cover travel, transportation, use of a personal car, meals or entertainment – one of these forms will need to accompany your 1040 and Schedule A. To use Form 2106-EZ, however, you must use the standard mileage rate to calculate the deductible car expenses when using a personal vehicle for work. If you deduct actual gas and related costs, you can only use the longer Form 2106. And remember -- if your nonprofit employer reimburses you for any or all of your expenses and doesn't report it on your W-2, no deduction is permitted.
Donating Your Time
In the event your employer ever asks you to volunteer your time for special events or fundraisers scheduled on a day you aren't working, some of the expenses you incur that relate to volunteering may be deductible as a charitable donation. For example, suppose you agree to help out with a fundraising event during the weekend. If you end up paying tolls on your drive to work, have to pay for parking or take public transportation, these costs are unrelated to your job and can be deducted as a donation.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.