When someone feels compelled to support your nonprofit organization, it’s important that you properly acknowledge their generosity with a donor acknowledgment letter.
More than making sure they know how much you appreciate their gift, donors need acknowledgment letters in order for their donation to be tax-deductible. And that letter needs to have the right information. Without it, your donors might be left high and dry–and less willing to support your mission in the future.
In this article, we’ll look at the basics of donor acknowledgment letters: what you need to include, what you should include, and everything in between.
Sometimes referred to as a donor thank-you letter or donation receipt, a donor acknowledgment letter is just what it sounds like—a letter that acknowledges the act of a donation. But a good donor acknowledgment letter goes beyond just acknowledging the gift.
These letters are also often used for tax purposes in the case that the donation was given to a nonprofit whose donations are tax-deductible, such as a 501(c) nonprofit.
The right letter should do the following:
This is pretty straightforward—if you receive a donation of liquid money, then you’ve received a cash gift! Regardless of whether you get this contribution through a check, cash, or credit card, “cash” refers to the type of gift and not just the method of giving.
This means instead of getting money, someone donates goods or services to your organization. Usually, large businesses and corporations make these kinds of donations. An example would be a large grocery chain providing your organization with gift cards to purchase materials for a fundraising event.
When you receive donations through an online donation form on your website or a fundraising page elsewhere, that becomes online donations. Online donations can be generic, for a specific fundraising event, crowdfunding campaigns, peer-to-peer campaigns, text-to-give, and recurring programs.
People often donate stock to charities. It is considered more beneficial for the nonprofit and the donor. Since the donation is in stock, the contribution value and tax-deduction both increase up to 20%.
Legacy donations are planned future giving in which the donor leaves a gift in their will for the nonprofit of their choice. It may include a part of one’s property or estate and is made to create a lasting impact.
In order for donors to claim contributions of $250 or more, the IRS requires that they must receive a written acknowledgment of their gift.
When you get nonprofit status, one of the huge perks is that donations to your organization are tax-deductible. This is a great incentive for your donors to give to your organization year after year—and it means you need to do everything required to stay in good standing with the IRS and your donors.
Beyond sharing the legal tax-deductible information, it’s vital to acknowledge donors so they don’t have a minute to doubt that their donation was received and appreciated.
Focus on messaging that shows the donor their role in your organization’s mission. How will their donation be used to serve your mission? Donors will be more likely to give again in the future if they can see how their donation is working.
Pro tip: Did you know that 71% of your donors feel more connected with your organization when they receive personalized materials? Personalizing a donor acknowledgment letter is a good way to start a lasting relationship.
The legal answer: Before January 31st of the year following the year the donation was made. So if you receive a donation on November 23rd, 2021, you technically have until January 31st, 2022 to send an official donor acknowledgment letter.
The practical answer: As soon as possible! You’ll want to send out your acknowledgment letters ASAP for a few reasons:
Now that we know how vital it is to acknowledge donors in the right, timely manner, what has to go in an acknowledgment letter for a donation? The IRS requires that all 501(c) nonprofits send letters to acknowledge donations of $250 and over that contain the following information:
Although not required by the IRS, some organizations also include their address and their Employer Identification Number (EIN). It’s up to you how much information you put in your letter, but you must clearly state the name of your organization and clarify what kind of nonprofit your organization is—501(c)(3), 501(c)(5), etc.
This should be the name the donor used to make the gift. If you choose to send physical acknowledgment letters, you may also need to include your donor’s address on the letter to follow proper business letter practice, but this is not required.
Although not required by the IRS, including the date on your acknowledgment letter is a service for your donor. The IRS asks that donors keep records of their donations over $250 like bank statements or credit card statements, but if the donor does not have access to these materials the IRS will accept the donation receipt as evidence of the date.
Pro tip: It can sometimes be tricky to ascertain the date of donation in cases of mailed checks. The best practice is to use the postmarked date for mailed checks. This is especially important around the end of the year when your organization might be getting several checks that you don’t deposit until the following year. You want to be sure your donor gets the tax deduction in the year they intended. Credit card donations are easier—the date of donation is simply the date of the charge!
If the donation is cash, you should state so and include the amount donated. For non-cash donations, you’ll need to describe the nature of the gift.
In-kind gifts can be tax-deductible for donors, but it is the responsibility of the donor to value the donation. You should still provide an acknowledgment with a description of the goods or services received.
Stock gifts should include both the number of stocks given and the company name. It should not include the fair market value of the stock.
For gifts of property, the physical address/location should be marked on the letter so the IRS can match it with any property appraisals.
If your donor got anything in return like a ticket to your organization’s gala or museum admission, it’s important to say so on the letter and provide a good-faith estimate of the value of whatever goods or services you provided in return for the contribution. If your donor didn’t get anything in return, you still need to include a statement saying so.
You can also include a statement that your donor received intangible religious benefits in return if that’s the case.
Note: Although the IRS doesn’t require you to provide this information for donations under $250, it’s still good practice. You know that donations of every size are helpful to your organization, so you want to make sure donors of every size feel appreciated, too.
As long as your letter includes all the information listed above, you may format your acknowledgment letter however your organization sees fit. However, keep in mind that your letter is a reflection of your organization—so you want it to reflect you in a good light!
Most organizations choose to send a formal business-style letter. Those kinds of letters have the following features: :
This is the most common way to acknowledge donors. You can choose to send your letters through the mail or as an attachment via email. Some organizations have even turned to sending postcards instead of letters, but you should exercise caution with that since you want to protect your donor’s privacy.
Although you’ll of course want to make your acknowledgment letter fit your organization’s needs, here is a downloadable template file with 2 acknowledgment letter templates to get you started that cover your bases for both the IRS requirements and other best-practice inclusions.
Pro tip: When you work up a form letter that you think works for your organization, run it by an attorney who specializes in nonprofit matters. They’ll be able to confirm that you have all the necessary information.
Simply put, your donor cannot deduct their donation on their taxes. The IRS has refused tax deductions for donors who cannot provide adequate proof. Some cases are even denied based on the timeliness of the acknowledgment or an inadequate amount of information included in the letter.
While there is no penalty to your organization for not providing timely, correct acknowledgment letters, there is a significant negative consequence: you aren’t treating your donors properly.
The best thing you can do? Automate your acknowledgment letters with your donor management system or nonprofit customer relationship management (CRM) system.
With Donorbox, you can customize your receipt email to fit your needs so no donation goes without being appreciated. This means that once you come up with a form letter that works for your organization, Donorbox can handle the rest and automatically send acknowledgments to your donors. Here’s how it looks on the backend.
Automating this process means you’ll never miss acknowledging a donor. Your donors will appreciate the prompt acknowledgment with all the correct information they need to deduct their donation.
Pro tip: You also need to send a year-end donation receipt with a summary of all gifts a donor has given over the course of the year. This helps your donors when it comes time for them to file their taxes. The good news? Donorbox also automates year-end tax receipts, too, meaning you don’t have to worry about compiling that data yourself. Learn more about Donorbox’s receipt automation here.
You know how important donations are to your organization. When someone goes out of their way to support your work, it’s important to provide them with everything they need to feel properly appreciated and to reap all the benefits donating provides them.
By doing the front-end work of making sure your form donor acknowledgment letter has all the necessary info and then automating the actual sending process with Donorbox, you’ll never have to worry that you’ve missed thanking a donor. Use the samples provided in this article as a starting point to craft an acknowledgment letter your donors will be happy to receive.
For more donor management tips, look around the rest of our nonprofit blog.
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