Contributions: Proper Documentation and Classification

What are the requirements for a contribution receipt?

Contributions receipt rules in the United States have changed in the last few years.

Starting August 18, 2006, a contributor may only deduct a donation by cash or check if the contributor has a receipt or bank record of the contribution.

Before that date, you could use your canceled check as documentation. However, in recent years the IRS has begun to crack down on deductible contributions.

Now all contributions must have proof of the deductions. As stated above that proof may be either a bank record or receipt.

The receipt must include the Church's or Nonprofit's name, the date of the donation, and the amount.

An annual contribution statement will satisfy this requirement for churches.

It should include the following wording: "You did not receive any goods or services in connection with these contributions other than intangible religious benefits". The wording does not have to be word for word as the example, but must convey the same concept.

How are non-cash contributions reported and valued?

A written receipt should be issued for all non-cash contributions. Usually, your organization is not responsible for establishing the value of the non-cash items and should not include any value on the receipt.

Click here for is an example of a noncash contribution receipt.

However, a new tax law adopted in 2004 requires extra documentation from your organization for donations of qualified vehicles (including automobiles, boats, and airplanes).

The rules are pretty detailed. If you need the exact instructions, you can research it on the IRS site

Can you deduct gifts to specific individuals?

An example would be if a generous church member gives a needy individual in your church a couple of bags of groceries, the Lord would certainly bless him; however, the church could not issue him a receipt for his nondeductible gift.

On the other hand, if a love offering is taken up for the needy individual (who does not provide services to the church), the contributors would be able to deduct their donations. Also, the benevolence assistance is not considered taxable income to the needy individual.

Another example of this is when the church takes up a love offering for the pastor. If the love offering is given directly to the pastor and is not processed through the church's contribution records, then the contributors are not going to be able to deduct their donation. The love offering is a non-taxable personal gift to the pastor by the church members.

One important factor to remember is: in both examples the love offering was initiated by the church not the contributor.

Can the church or nonprofit issue a receipt for donated labor and services?

Say...a repairman voluntarily came and fixed your church's air conditioner. He usually charges $75 per hour for his labor and he spent $50 for parts.

You can issue him a contribution receipt for the parts; however, his labor is a generous non-deductible gift to the church. Also, he can deduct his mileage to the church and back if he itemizes on his personal taxes.

Un-reimbursed expenses that volunteers incur while performing their volunteer services can generally be deducted from their personal tax return.

Examples of deductible items include mileage (at the current federal standard mileage rate), travel and lodging, and meals incurred during travel which required an overnight stay.

Important note : If their volunteer’s expenses exceed $250, they should receive a letter from your organization indicating the type of services they provided.

The letter should not include the value of the volunteer's expenses. The burden is upon the volunteer to prove their expenses.

Whether you use contribution software, spreadsheets, or paper...understanding when to issue receipts and when not to, is knowledge every finance person in your church should have.

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Recommended Reading and Products:

Membership Plus Version 11 - Deluxe Edition By ACS Technologies Designed to simplify the administrative tasks involved in managing your church or organization, Membership PLUS Deluxe version 11 includes all of the features and functionality of the Standard version and much more! It's an easy to use, effective and reliable church management tool for Administrators, Program Leaders and Clergy. View the Membership Plus Standard & Deluxe Comparison Chart Standard features include: Easily track members, visitors, organizations, contributions, group attendance and much more! Maintain multiple addresses, phone numbers and email addresses. Includes built-in reports as well as Report Builder for your custom reports. Quick Letter, Mailing labels, Policies and Procedures, Surveys, and more Deluxe features also include: Integrating contributions with Fund Accounting to eliminate duplicate entry of information Allowing users to post contributions within the privacy of their own home using the Contributions@Home module Small Groups Event Registration Calendar Progress Tracker Quick Viewer for users who don’t need full access allowing you to protect sensitive member information! Multi users licensing is also available. Requirments include: 512MB RAM Windows 00/XP/Vista

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