Contribution Receipts Requirements

Six important charitable contribution receipt rules that everyone involved in tracing and recording contributions should know…

Sending out Contribution Receipts: 

Contribution Receipt Rules

Receipts or acknowledgments can be issued gift-by-gift, monthly, quarterly, annually, or any other frequency your church decides.

However, most churches send out annual contribution receipts on or before January 31st of the following year.

Before you send them out, you should provide some sort of written communication to your donors regarding your timeline and that they should not file their taxes until they receive all contribution receipts for the tax year to ensure all their contributions were deductible.

You could do this by posting a notice on the bulletin board, sending out a letter, including in newsletter, posting on church web site, etc. 

...because not all contributions are tax deductible!

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Contribution Receipt Rules:

According to Richard Hammar J.D., LL.M., CPA, charitable contributions generally must satisfy 6 requirements:

1. A gift of cash or property.

  • You cannot give a contribution receipt for a discount.  Often businesses will give churches discounts on their merchandise. Some will then turn around and ask your church for a donation receipt for the difference between the price they let the church pay and what they normally sell their product for. Discounts are not tax deductible.
  • The IRS does not permit a tax deduction for donated labor or services. However, a donation receipt may be issued for donated materials and other out-of-pocket expenses. See this page on Contribution Receipt Rules  for more details.
  • The value of rent-free building space donated for a church is not tax deductible.

2. Claimed as a deduction in the year in which the contribution was made.

  • Donors must give their contribution checks on or by December 31st to be included in that year’s written acknowledgement of their contributions.
  • If it comes in the offering on or after January 1st…even if the check was backdated for the year before …it would not be included in that year’s annual contribution letter.
  • However, if comes through the mail and is received by your church on or after January 1, but check(s) is dated AND postmarked on or before December 31…it would be deductible and included in their annual contribution statement.

3. Unconditional and without personal benefit to the donor.

  • Your church must have complete control over the contribution!
  •  Example of this is if an individual gives a contribution designated to your benevolence fund…but makes the stipulation that it is to go to a specific needy individual in the church. That contribution would not be tax deductible to the donor and would not be included in their contribution receipt.

4. Made “to or for the use of” a qualified charity.

See how to receive, record, and acknowledge contributions per IRS guidelines in my book:

The How-To Guide for Small & Growing Churches

  • A church cannot give a receipt for a contribution with strings attached. You can accept the gift but unless the church has complete control over how the donation is used it is not tax-deductible
  • Contributions designated or made to individuals are not tax deductible. See this page on contributions to individuals.
  • There may be an exception to that rule such as when the contribution is to foreign missionaries under the control and supervision of the church. The contribution may not be made out the church BUT it is made “for the use” of the church. See this article by the MinistryCPA - Corey A. Pfaffe, CPA, LLC: Designated Gift to a Missionary

5. Within the allowable legal limits.

  • Donations are limited in the amount a donor can deduct but many times can be carried over and claimed in future years. See IRS Publication 526 on limits on charitable contributions.

6. Properly substantiated.

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  • All contributions must have proof of the deduction to be tax deductible.
  • If a single contribution is smaller than $250, the proof may be either a bank record or a donation receipt.
  • A bank record for this record-keeping requirement includes bank or credit union statements, canceled checks, or credit card statements.
  • For single contribution of $250 or more the donor must obtain a contemporaneous, written acknowledgment of the contribution from the recipient organization. (IRS Publication 1771
  • According to the IRS Pub 1771, the recipient organization can either issue single charitable contribution receipt for each contribution of $250 or more, or you can attach an itemized statement to the donor's annual contribution statement which includes all of the donor's tax deductible contributions.
  • A contribution receipt must include the Church's or Nonprofit's name, the donor's name, the date(s) of the donation(s), and the amount(s).
  • It must also contain a statement explaining whether the charity provided any goods or services to the donor for the donation. If no goods or services were provided, you would include wording such as:

"You did not receive any goods or services in connection with these contributions other than intangible religious benefits".

  • A written receipt should be issued for all non-cash donations. Usually, your organization is not responsible for establishing the value of the noncash items and should not include any value on the receipt.
  • Make sure your noncash donation receipt includes:
  • Name of church
  • Description of donated item but remember we are not appraisers so do not include a value. Donors are responsible for determining value. Can be done by consulting their CPA or using fair market value as outlined in IRS publication 561 Determining the Value of Donated Property
  • Statement such as: “You did not receive any goods or services in connection with this contribution other than intangible religious benefits".
  • Click here for an example of a noncash donation receipt
  • Important:  a new tax law adopted in 2004 requires extra documentation from your organization for contributions of qualified vehicles (including automobiles, boats, and airplanes).
  • There are also some strict regulations for contributions of property valued over $500 and even more requirements for contributions of property valued over $5,000.
  • These laws are complex so for detailed instructions...look on the IRS website or purchase my book: Church Contributions.

Number One Rule when sending out contribution receipts:

Make sure name and address of donor is correct!

References:

Church and Clergy Tax Guide written by Richard Hammar J.D., LL.M., CPA

Contribution Receipts: 6 Weird Donations and How to Handle Them written by Raul Rivera of StartChurch

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