What expense category is Volunteer Management and Coordination Costs?

For most nonprofit organizations, volunteers are an essential part of the workforce, providing the time and talent needed to deliver on the mission. Managing these volunteers—from recruiting and training them to conducting background checks and showing appreciation—involves a variety of necessary operational costs.

For accountants and nonprofit leaders, it is crucial to categorize these expenses correctly to ensure accurate financial reporting, demonstrate effective use of funds to donors, and comply with IRS requirements. This guide will clarify how to classify the various costs of volunteer management based on standard accounting and tax principles.

Volunteer Management and Coordination Costs Category

There is no single expense category for all volunteer management costs. The various expenses must be unbundled and categorized according to their specific nature. For a nonprofit organization, these are generally considered administrative or program-related operating expenses. Based on the principles in the provided IRS documents, they are classified as follows:

• Recruiting Costs (Advertising/Other Expenses): Costs to recruit volunteers, such as placing ads, are a deductible advertising or general business expense.
• Training Costs (Education/Other Expenses): The costs of training volunteers are a deductible educational expense.
• Background Checks (Professional Fees): Fees paid to a third-party service for background checks are a deductible professional service fee.
• Appreciation Gifts (Gifts/Other Expenses): The cost of gifts to volunteers is a deductible expense, subject to specific limits.
• Volunteer Management Software (Subscriptions/Rent): Recurring fees for software are a deductible subscription or rent expense.

Important Considerations While Classifying Volunteer Management and Coordination Costs

To correctly account for these expenses, it is critical to separate the different types of costs, as they may have different rules or reporting lines.

Appreciation Gifts

If you provide gifts to thank your volunteers, the rules for business gifts apply. According to IRS Publication 463 the deduction for gifts to any one individual is limited to $25 per year. Small promotional items, such as a pen with your organization's logo that costs $4 or less, are not subject to this limit and are considered an advertising expense.

Appreciation Events

If you host a party or picnic to thank your volunteers, the cost is generally a fully deductible business expense. This is similar to the rule in Publication 463 for employee recreational events.

Volunteer Management Software

The recurring subscription fees for volunteer management software are treated like any other software-as-a-service (SaaS). Based on the principles in IRS Publication 535 these are currently deductible expenses, similar to rent.

Tax Implications and Recordkeeping

Properly accounting for volunteer management costs is essential for a nonprofit's financial statements and IRS reporting.

How to Report the Expense

While the provided documents focus on for-profit tax forms, nonprofits have their own reporting requirements (such as the Form 990 series). On these forms, volunteer management costs are reported as administrative or program service expenses. Accurate categorization of each cost (training, software, etc.) is essential for this reporting.

What Records to Keep

You must have documentary evidence to substantiate all your volunteer management costs. Your records should include:

• Invoices from vendors for background checks, software subscriptions, or training sessions.
• Receipts for any appreciation gifts or event costs.
• Proof of payment for all related expenses.

How Fyle Can Automate Expense Tracking for Volunteer Management

Fyle helps you capture and organize the diverse costs of managing your volunteer program, ensuring every expense is documented and allocated correctly.

• Centralize All Invoices: Forward or attach your background check and software vendors invoices directly to Fyle for automatic capture.
• Track by Program or Event: Code all costs to a specific program or volunteer appreciation event for precise financial tracking.
• Capture Gift Receipts Instantly: Instantly capture receipts for volunteer appreciation gifts using the Fyle mobile app to ensure compliance with the $25 limit.
• Automate Your Accounting: Sync all categorized volunteer-related expenses to the correct GL account in QuickBooks, Xero, NetSuite, or Sage Intacct.