Complete Guide to Donation Receipts for Nonprofit Organizations

Complete Guide to Donation Receipts for Nonprofit Organizations

donation receipt guide

In a world where nonprofit professionals face multiple competing demands on their time and are often under a lot of pressure, it can be easy to think nonprofit donation receipts aren’t important.

Or that they matter only because of the IRS requirements!

But that’s not true!

Whether it’s engaging new donors, connecting with donors, and establishing your brand… Whether you write them by hand, email them, send them via postal mail, or via a carrier pigeon – it doesn’t matter!

Donation receipts are important.

They help you cover your bases with the IRS; they help you track your donations, and they are crucial to successful donor relationships. Prompt and thoughtful gift acknowledgments are central to effective fundraising.

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.

There are IRS requirements for both donors and nonprofits to consider when it comes to tax donation receipts.

Since not all donation receipts fulfill the IRS guidelines, it’s important to know what constitutes a donation tax receipt and what doesn’t.

Before moving ahead, here’s a complete video tutorial on how to create a tax-compliant 501(c)(3) donation receipt with Donorbox:

Keep reading to learn what you ought to know about nonprofit donation receipts!

What Are Donation Receipts?

A donation receipt is a written acknowledgment that a donation was made to a nonprofit organization. By providing receipts, you let your donors know that their donation was received. These donation receipts are written records that acknowledge a gift to an organization with a proper legal status. Registered nonprofit organizations can issue both “official donation tax receipts” and more informal receipts.

Why Donation Receipts Matter to Donors?

First and foremost, donation receipts let donors know their donations have been received.

Everyone who purchases something online or donates online has one main question – Was it successful? Did the payment go through? Essentially, your receipt lets your donors know that you received their donation and all is well.

Additionally, donation receipts help your donors keep track of their finances. Furthermore, donors need donation receipts if they want to claim charitable donations on their tax refunds.

If a donation exceeds $250, the donor must obtain written acknowledgment of the donation before claiming a charitable contribution on their federal income tax return.

Why Donation Receipts Matter to Nonprofits?

Donation receipts can reduce income tax owed by people and businesses that donate, and because of this, they can encourage donations.

By providing receipts, you let donors know their contribution has been well received. This makes donors feel appreciated and acknowledged, increasing their trust and loyalty.

Proactively sending donation receipts is key to building long-lasting and trusting relationships with your donors. Plus, it’s the perfect opportunity to show your appreciation for their donation.

For first-time donors, this is one of their first interactions with you and will have a huge impact on whether or not they decide to give again.

Finally, issuing donation receipts helps your organization keep track of donation history. Storing such information is crucial for proper accounting and financial management.

When to Issue Donation Receipts?

There are no rules about when official donation receipts must be issued. Many nonprofits send receipts out by the end of the year the gift was given or in January of the following year (in case of year-end donations).

But…Donors expect to receive a “thank you” for a contribution of any size, and they also expect it soon after making their gift.

So, it’s advised to send out a donation receipt within 24-48 hours of the donation being made.

This can be achieved by automating the process of issuing donation tax receipts (more on this below).

The IRS requires donation receipts in certain situations:

  • Single donations greater than $250
  • When a donor received goods or services in exchange for a single donation greater than $75
  • Whenever a donor requests a donation receipt

There is no legal requirement for gift acknowledgments for contributions of less than $250 unless the donor receives something of value in return for the gift, which triggers special rules for “quid pro quo” contributions.

In case of a non-monetary donation, if a donated item exceeds the value of $5,000, it will need to be appraised by a qualified appraiser in order for them to claim it on their taxes.

In the case of a donor having an amount taken directly from their paycheck, they can use a W-2, wage and tax statement, or other employer-provided documents that detail the amount taken from their check.

Failure to send a receipt can result in a penalty of $10 per contribution, up to $5,000 for each specific campaign.

Note: If a donor has an annual membership with your nonprofit they don’t need a receipt if the annual cost is $75 or less in goods or services provided in exchange.

What to Include in a Donation Receipt?

Here are basic donation receipt requirements in the US:

  • Name of the organization to which the donation has been made;
  • A statement that the nonprofit is a public charity recognized as tax-exempt by the IRS under Section 501(c)(3);
  • Name of the donor;
  • The date the donation was received;
  • Amount of cash contribution;
  • Description (but not value) of any non-cash contribution (the nonprofit should not attempt to assign the cash value of property; doing so is the donor’s responsibility);
  • A statement that no goods or services were provided by the organization (if applicable);
  • Description and good faith estimate of the value of goods or services, if any, that the organization provided in return for the contribution;
  • A statement that the organization did not provide more than insubstantial goods or services in return for the donation, such as, “No goods or services were received in return for this gift”.

If your organization provides intangible religious benefits, be sure to include a statement like, “The organization provided intangible religious benefits or services to the donor.”

Learn more here.

Include your physical mailing address and EIN (Employer Identification Number). Although not required, donors will need to provide this information with their taxes. Therefore, it’s a kind gesture to provide all that information for your supporters’ convenience.

Pro tip: Be extra careful around year-end when a donor could mail a check in December but you don’t receive it until January. Make sure you report the correct date on the donor receipt.

There are different rules to follow on a donation receipt depending on where you live so it’s best to go directly to your government’s website to check for accurate information, especially since rules and regulations can change. Here is some more information for Canada, the USA, and Australia.

How to Send Year-End Tax Receipts

Sending out year-end receipts is a great way to thank your donors and acknowledge how much their donations mean to your organization. This is also a great opportunity to set the stage for the coming year of gift-giving. Your donors need a year-end tax receipt to get tax exemption for their donation. Although it is not mandatory for nonprofits to send the year-end donor receipts, sending receipts to them nevertheless will be helpful for them and might go a long way in fostering great donor relationships.

With Donorbox, you can send year-end tax receipts to an individual or all donors, and personalize the message on your receipt- here is the step-by-step guide.

send tax receipts to donors

How to Automate The Donation Receipts Issuing Process

Getting started with donation receipts can be tough and time-consuming. This is why some nonprofits set a threshold for issuing donation receipts. For instance, you can decide to send donation receipts only to those supporters who donate more than $20.

A simpler alternative is to use a good nonprofit donation software. With Donorbox, you can customize and automate donation receipts in the blink of an eye. Once a donation comes in through an online donation form, Donorbox automatically emails the receipt to the donor. No stress and no hassle!

With Donorbox, you can also send a consolidated receipt of the year’s donations to one or all donors with just one click and you can also 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. The editor allows you to create and customize the draft of your receipt content. We will then populate it automatically with all the necessary donation details and organization info.

For more information, follow this step-by-step guide.

When you issue a donation receipt right away (which automating the process helps you do), your donors will feel more engaged. It keeps their gift top-of-mind, which is an important step for asking for a donation in the future. The immediacy of your response will show that your nonprofit is responsive and appreciative.

Pro tip: Never state on the donation receipt that a contribution is deductible — contributions may be deductible, based on the donor’s particular tax situation.

nonprofit donation receipt

Donation Receipts: Tips and Best Practices

1. Personal Acknowledgement

For best results, write a personal acknowledgment letter that includes the IRS-required elements.

It’s confusing to the donor to receive a thank-you email and then a separate donation receipt email. Remember, the donor’s interaction with your nonprofit is about how they feel and how smooth the process is for them, not about your convenience.

In this acknowledgment letter, thank the donor and highlight the impact of their gift.

When you send a donation receipt via email or snail mail, include the donor’s name. Using their first name reassures them that the data is accurate and trustworthy. Also, use a real person’s name and make the email address from which you send the donation receipt appear as human and as trustworthy as possible.

The more you can personalize the letter- the better!

2. Keep Track

It’s best practice to track all of your income – in this case, your donations. Besides donation receipts, try to maintain separate recordings of each donation, no matter the amount. This includes non-monetary donations, such as land or other types of property.

Keep track of pledges too, since they must be accounted for in the year in which the pledge is made, even if the gift doesn’t arrive in that fiscal year.

Whether you store records physically, digitally, or in both places, it’s important to keep up with them. If you are storing your donation receipts on a cloud-based system, download the records onto a physical hard drive at regular intervals.

3. Provide an Annual Summary

Your donors will also appreciate an annual summary. 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 when you finish processing your year-end donations. Donorbox makes it very easy to send automated year-end receipts to your donors, learn more about it here.

Although not necessary, it is beneficial for donors when they are doing their taxes.

4. Turn Them Into an Engagement Piece

A donation receipt is probably the only communication piece your donors really expect to receive from you. That’s why they are an opportunity to lead donors down a strategic path that makes them more involved and interested in your organization.

 Ask yourself what would make you want to dive deeper. For example, short videos are a great way to personalize the transactional process of giving a donation, as are dynamic and high-quality photos. You could also include testimonials from your staff, volunteers, or even beneficiaries.

Pro tip: Don’t ask your donor for something more. It’s time to thank them and give them an opportunity to dive deeper into your mission.

donation receipt best practice

Moving Forward

Donation receipts can be confusing and time-consuming, but they are an important part of your nonprofit fundraising work.

Make sure that you familiarize yourself with the donation receipt requirements for your country.

Then, invest in the right nonprofit tools, like Donorbox, to make the process easier and free up time for interacting with your donors or creating big fundraising campaigns!

Check out our Nonprofit blog for more nonprofit resources and tips.

Note: By sharing this information we do not intend to provide legal, tax, or accounting advice, or to address specific situations. The above article is intended to provide generalized financial information designed to educate a broad segment of the public. Please consult with your legal or tax advisor to supplement and verify what you learn here.

Ilma Ibrisevic is a content creator and nonprofit writer. She’s passionate about meaningful work, sustainability, and social movements. If she’s not working, she’s obsessing over coffee or cooking. You can connect with her on Linkedin.

Join the Nonprofit Movement
Receive our free email updates to get nonprofit tips, resources and freebies sent directly to your inbox.

Join us in serving the nonprofit world!

Take your donor experience to the next level!
Join the 35,000+ nonprofits already raising funds online.
(No setup fee. Unsubscribe anytime)
Join Our Newsletter
Get a monthly curated round-up of our best posts and feature updates. (You can unsubscribe anytime.)
Join Our Newsletter
Get a monthly curated round-up of our best posts and feature updates. (You can unsubscribe anytime.)