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.
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.
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?
Usually, gifts by church members to pastors, specific needy individuals, and specific church employees are not charitable contributions and should not be included on the contributor's annual contribution statement.
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?
No. The IRS does not permit a tax deduction for donated labor or services. However, a contribution receipt may be issued for donated materials and other out-of-pocket expenses.
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.
In summary, keeping accurate records of contributions is imperative for your organization as contributions are the life blood of your organization.
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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