Pro Bono Services
Pro bono means "for the public good" in Latin, and you may come across the term when you're dealing with the legal profession. Services are offered for free, or sometimes at a cost, to benefit a cause or the general public. The American Bar Association suggests that attorneys should commit themselves to do 50 hours of pro bono legal work annually, and some state bar associations require that lawyers report their pro bono hours and activities regularly in order to maintain their licenses to practice.
Pro bono services are not something you do for your neighbor for free, and they don't involve volunteering to run the Girl Scout cookie station for an afternoon. From a tax standpoint, pro bono services must be donated to charitable organizations or causes. The IRS treats pro bono services and free or discounted services and volunteer services differently. It uses separate guidelines to govern how you can deduct associated costs and expenses.
Pro bono services are sometimes offered "at cost." For example, a professional consultant may donate his time and expertise but ask for payment to cover traveling expenses. Volunteers for charitable organizations may also be able to deduct travel expenses, but with more restrictions and at a lower percentage rate than for true pro bono services.
Volunteers also offer time, knowledge, skills and expertise for free to help other people or organizations. The IRS classifies volunteer services into two basic categories:
- Non-GAAP Volunteer Services: These are not tax-deductible for the individual donating his time and services.
- GAAP Volunteer Services: GAAP services or "professional" services are sometimes at least partially tax-deductible.
GAAP is an acronym that means "generally accepted accounting principals." These principles cover the most common practices and rules for financial reporting of business income. This is an important distinction because of the tax treatment of volunteered time and services. Normally, the Internal Revenue Service does not allow non-GAAP, non-business taxpayers to take tax deductions for the monetary value of the time they commit to volunteerism. If they incur expenses in volunteering, however, these may be deductible as charitable donations. But claiming such a deduction requires itemizing rather than claiming the standard deduction, something that is not always advantageous to all taxpayers.
The Big Difference
The big difference between GAAP services that may qualify as pro bono services and non-GAAP volunteer services is that pro bono services are typically offered as professional services. An individual, business or organization would ordinarily have to pay the donor for this work. The tangible expenses of providing pro bono services can be at least partially deducted on business tax returns.
Volunteer services come from individuals who would not normally charge for their time and the skills they donate.