The holiday giving season, the most significant part of the year for nonprofit fundraising, is now behind us.
Many donors choose to give to nonprofits at the end of the year. The giving occurs at fundraising galas and auctions, through end-of-the-year e-mail and direct mail appeals, online fundraising, and other fundraising activities.
There are many reasons why donors choose to give – at the end of the year and during the rest of the year: supporting a cause they care about, leaving a positive legacy, or acting upon their personal moral philosophy. Amongst these, the deductibility of charitable contributions is one of the more important incentives for donors.
A general rule is that only 501(c)(3) tax-exempt organizations (i.e. public charities and private foundations) – formed in the United States – are eligible to receive tax-deductible charitable contributions. The organization must be exempt at the time of the contribution in order for the contribution to be deductible for the donor. Because of this, it’s important that your nonprofit organization stays up to date with the IRS notifications. It’s also crucial to take immediate action on any matters regarding your tax-exempt status.
Note: Both organizations and donors can check the status of an organization by searching the Exempt Organizations Select Check, a publicly available online database of qualifying organizations published by the IRS.
Here’s what you need to know about Donation Receipts:
- When are Donation Receipts Necessary (Rules of the IRS)?
- Best Practices for Creating a 501(c)(3) Tax-Compliant Donation Receipt
- How to Create a 501(c)(3)-Compliant Receipt Using Donorbox
- Sample 501(c)(3) Donation Receipt (Free Template-Doc)
- Why Send a Year-End Donation Receipt?
When are Donation Receipts Necessary? (Rules of the IRS)
It is important to note that the IRS has been taking a harsh approach by disallowing charitable donations simply due to the tax receipt not containing the required information.
The IRS imposes recordkeeping and substantiation rules on donors of charitable contributions and disclosure rules on charities that receive certain quid pro quo contributions.
This is why it’s more important than ever to pay attention to your donation receipts.
- Donors must have a bank record or written communication from a charity for any monetary contribution before the donors can claim a charitable contribution on their federal income tax returns.
- Donors are responsible for obtaining a written acknowledgment from a charity for any single contribution of $250 or more before the donors can claim a charitable contribution on their federal income tax returns.
- Charitable organizations are required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.
Read more here.
Best Practices for Creating a 501(c)(3) Tax-Compliant Donation Receipt:
The receipt can take a variety of written forms – letters, formal receipts, postcard, computer-generated forms, etc.
It’s important to remember that without a written acknowledgment, the donor cannot claim the tax deduction.
Whatever the form, every receipt must include six items to meet the standards set forth by the IRS:
- The name of the organization;
- The amount of cash contribution;
- A description (but not the value) of non-cash contribution;
- A statement that no goods or services were provided by the organization in return for the contribution, if that was the case;
- A description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution;
- A statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits.
Each donor receipt should include the name of the donor as well. Many donor receipts also include the charity’s address and EIN, although not required. The donor, however, should have records of the charity’s address.
Donor receipts should include the date of the contribution. If the donor receipt doesn’t include the date, the contribution may be disallowed entirely. Nonprofits need to be extra careful around year-end when a donor mails a check in December but the organization doesn’t receive it until January. Make sure you report the correct date on the donor receipt.
It is very important that a donor reduces the amount of the contribution deduction by the fair market value of the goods and services provided by the organization.
Here’s an example by tdtpc.com:
Silent Auction: Donor pays $100 for a silent auction item. The fair market value of the item is $200.
What amount can the donor deduct? $0. The value received by the donor is greater than the amount donated; therefore, no deduction is allowed.
Is a receipt required? Yes, donation received was greater than $75 and they received goods. The receipt should state that the value of goods received was greater than the contribution and therefore no charitable contribution is allowed.
If your organization provided no goods or services in exchange for the donation – something as simple as “no goods or services were provided in exchange for this donation” is all that is needed to meet this required element.
How to Create a 501(c)(3)-Compliant Receipt Using Donorbox
Organizations using Donorbox, our powerful and effective donation software, can very easily generate 501(c)(3)-compliant tax receipts. This includes both receipts for every individual donation and consolidated receipts of the entire year of donations.
For example, you can send a consolidated receipt of the year’s donations to one or all donors with just one click. Check out this solution for more info. You also have the ability to attach a PDF of the donation receipt in donor receipt emails.
To create a 501(c)(3)-compliant receipt with Donorbox, simply log in and use our easy template editor. It allows you to create and customize the draft of your receipt contents. We will populate it automatically with all the necessary donation details and organization info.
Check out this solution for a step-by-step guide.
Sample 501(c)(3) Donation Receipt (Free Template-Doc)
All of these rules and regulations can be confusing.
Therefore, we’ve created a sample document for you to use as a template or get inspiration from.
Why Send a Year-End Donation Receipt?
It’s important to stay on top of positive donor relations by issuing 501(c)(3) tax-compliant receipt.
You could theoretically provide a receipt for each and every donation. However, it is best practice to provide a single receipt once per year.
This one receipt is a consolidated record of all the donor’s donations in one place. This makes it easier for the donor because they don’t need to keep track of multiple single receipts. This way, donors can organize their records and get ready for accounting and filing for tax returns.
It’s always best to provide donors with any year-end receipts prior to January 31st of the following year.
In conclusion, providing donation receipts is important for meeting legal requirements and for building a relationship with your donors.
Note: By sharing this information we do not intend to provide legal or accounting advice, or to address specific situations. Please consult with your legal or tax advisor to supplement and verify what you learn here.