By Janet Marcel
‘Tis the season of hustle and bustle for non-profits – the community events, donations to needy families, winter clothing drives, special holiday services – it’s enough to make anyone’s head spin! And after the new year, when the rest of us relax into our warm winter hibernations; non-profits are still experiencing the chaos, this time it’s the hectic domination of paperwork. “Donation receipts” is just one thing on that list. Because of the complex rules involved, it’s worth taking some time to make sure you get it right.
In order for a family (or company) to claim a tax-deduction for a donated gift, there are very confusing rules the IRS has imposed. To help make sense of it all, there are a few IRS publications that are worth reading if you are in charge of issuing donation receipts; in addition to a website that guides you through the process with useful videos and articles at www.stayexempt.irs.gov. All churches are subject to these IRS rules regardless of their tax-exempt status because all churches are automatically qualified organizations for the purpose of accepting donations even if they’re not a 501(c)3 charity.
Most people don’t need a donation receipt for tax purposes. Only companies, or people who itemize their deductions on Schedule A (Form 1040) can take a deduction for their charitable contribution. However, it is a very good practice to send receipts to every giver each January for two reasons. First, so your ministry is on the forefront of your donor’s mind. Some donors aren’t members but occasionally send a donation or sponsor an event. In that case when they get a donation receipt, it immediately peaks their interest to visit the website or to donate again. Second, people donate to ministries and organizations that seem organized and healthy. If a donor feels confident that every year he or she will receive a receipt early and doesn’t have to remind someone or call a million times, or substantiate the receipt with check numbers or amounts; they are more apt to donate again and pass the word along to more affluent donors.
So, the IRS now says that for any donation amount, a taxpayer must support the deduction with something like a bank statement, a cancelled check, credit card statement or a receipt from the organization. But if a single donation is $250 or more, they must obtain an acknowledgement from the charity to claim the deduction (a bank statement is not enough). Now, both of these obligations are the donor’s responsibility to obtain, not the organization’s to provide. So, don’t let anyone scare you into thinking it’s a law to send receipts or you will go to jail. The only thing that is a requirement for a charity to provide involves a different type of donation.
Contributions are only deductible to the extent they are gifts and nothing is received in return. A donation made by a donor in exchange for goods or services is known as a “quid pro quo” contribution, and only the amount that exceeds the fair market value is deductible. (“Quid pro quo” is Latin, and it means “this for that”.) So, if a charity issues a concert ticket with a fair market value of $40 in exchange for a $100 donation, that $100 is not fully tax-deductible because the donor received something in return. The IRS says that charities are required to provide a written disclosure when they accept a quid pro quo donation larger than $75.
The IRS doesn’t provide any template or form for these receipts, so you can use your own creativity if you are in charge of issuing them. However, it is best practice to have consistency from year to year to help establish the organization’s brand. You can issue a postcard, a form, a sales receipt, a letter, an email, a certificate; any format you’d like, provided
it has the following.
The name of organization (tax id number or social security number is NOT required)
The amount of cash contribution
Statement that no goods or services were provided by the organization in return for the contribution (if that was the case)
Description of non-cash donations (but not the value)
Quid pro quo donations need to have an estimated value of the goods or services provided in return for the contribution
Many people enjoy giving their time and money for charitable causes especially this time of year. Instead of looking at donation receipts as just another “task”, use it to express a heart-felt “thanks!” to your fellow supporters.
Janet Marcel is the director of Paper Trail of Western New York and has been assisting non-profits for over 15 years. For more information about professionally-crafted donation receipts, visit her website at www.wnypapertrail.com.