Handling Contributions

Accurately tracking and managing contributions is a must for any nonprofit organization. Charitable contribution deduction rules changed with the passing of the Pension Protection Act in 2006.

Handling Contributions

Before then, you could use your check registers or personal notations as documentation.

Now all donations must have proof of the deductions.

As stated above that proof may be either a bank record or a donation receipt.

A bank record for this record-keeping requirement include bank or credit union statements, canceled checks, or credit card statements.

They must show the date paid or posted, the name of the charity, and the amount of the payment.

A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgment of the contribution from the recipient organization. (IRS Publication 1771)

Written Acknowledgments for Contributions:

According to the IRS Pub 1771:

The donor is responsible for obtaining a written acknowledgment from a charity for any single contribution of $250 or more before the donor can claim a charitable contribution on his/her federal income tax return.

However, the IRS does require you as a charity organization to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75. Click on the above link to download the complete IRS publication on this matter.

So it is up to your church policy if you send out contribution statements or make them readily available for anyone who requests one.

Requirements for a Contribution Receipt:

contribution receipt rules

The 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".

An annual contribution statement will satisfy this requirement for churches.

You should send your donors a receipt no later than the due date of their tax returns.

However, if you are issuing receipts on an annual basis, you should try and get them to your donors by at least January 31st each year and earlier in January if possible. This will assist your donors in gathering necessary data for their tax preparations.

Frequency:

Your donation receipts or acknowledgments can be issued gift-by-gift, monthly, quarterly, annually, or any other frequency. This is up to your organization. If you have a policy and procedure manual, the frequency should be recorded there.

Form:

There is no specific design of the receipt required...EXCEPT for form 1098-C, used for gifts of autos, boats, or airplanes.

The receipt can be a letter, postcard, or a computer-generated form. It does not have to include the donor’s social security number or other taxpayer identification number...but it must include the required information listed above.

A receipt can also be provided electronically, such as via an email addressed to the donor.

Report and Value:

A written receipt should be issued for all non-cash donations. 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 an example of a noncash donation 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.

For detailed instructions...look on the IRS website or purchase my book: Church Contributions in the Church Accounting Package.

Gifts:

Usually, gifts by church members to pastors, specific needy individuals, and specific church employees do not qualify for a charitable contribution deduction and should not be included on the donor's annual contribution statement.

See this page for more love offering guidelines.

How to set up and administer a Benevolence Fund

Donated Labor and Service Contribution:

See more on setting up and properly administering a Benevolence Fund in the Church Accounting How To Guide

Includes:

  • requirements for payments
  • discretionary benevolence funds
  • benevolence for employees
  • disbursement procedures
  • written benevolence policy example and much more

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.

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 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.

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 they are the life blood of your organization.

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

The book: Charitable Contributions will take you step-by-step through the strict guidelines for donations of automobiles, boats, and planes...and what you must give your donors for donations of property over $500.

Do you know the the IRS mandates for contributions collected at church events such as: bazaars, banquets, actions, etc? See more details.

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Contributions Questions and Comments

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Contribution Q&A

The following comments, tips, and Q/A were provided by FreeChurchAccounting's generous readers:

Is a year-end contribution receipt necessary if the donor was another non-profit organization? 
Is a year-end contribution receipt necessary if the donor was another non-profit organization?

Recent IRS Ruling on Contribution Receipts 
Twice within the past few months after making an online charitable donation, I received a statement that no goods or services were received for my contribution. …

Can I deduct receipts for purchasing items requested by church 
Our church is collecting items to fill shoeboxes for Operation Christmas Child. can I deduct these expenses using my receipts for items I purchased or …

Expenses Paid for by Parishioner with Receipt 
I occasionally have a parishioner turn in a receipt for items they have purchased as a giving item. How do I treat these as far as giving records? Strictly …

Congregants leaving property and/or money to the church 
I have had a few congregants tell me that they want or are leaving some kind of property to the church when they pass away. They put this in their will/trust. …

Charitable donations using PayPal 
If someone donates to a charitable organization using PayPal, as long as the PayPal receipt includes all the required information, does that suffice as …

Business Sponsorship Tax Deductible? 
Our church is holding a concert and wants to ask businesses to sponsor the concert. Would the business' contribution be tax deductible? For example if …

Is it required to mail contribution statements to donors or is it up to the donor to request the statement? 
Is it required to mail contribution statements to donors or is it up to the donor to request the statement?

E-Giving and a W-9 
We are not 501c3. Should we have to provide a W-9 to the company processing the online receipts of Tithes and Offering. We do not file income taxes

Experience with Vanco Services 
Our Church has been using Vanco Services for 3 or 4 years and have found their services to be excellent and not expensive. Scheduled and one time …

Free Will Donation 
We have a dinner fundraiser where the attendees are asked to make a free will donation to the youth program (specifically their summer mission programs). …

Support from other churches/denomination 
As a recent church plant, we are receiving support from sister churches and from our denomination's church planting committee. How should these be accounted …

Deductions for Church Mission Trips 
A group from my congregation recently went to Kenya to help at a school. Each person was expected to pay $3000 for the trip. In return they received plane …

Contributions on behalf of a third party 
Situation: Contributor A writes contribution (tithe) check to church for stated amount. On Memo Line Contributor A writes "to be credited to Contributor …

Hard copies and/or eletronic copies Not rated yet
In the age of electronic accounting software, is it necessary to keep hard copies of donors' contributions? Once the contribution including applicable …

Can I split a tithe check across multiple months in QB? Not rated yet
Our largest donor recently submitted a single tithe check for the months of December, January and February combined. (He noted that on the check since …

EFT online giving Not rated yet
Another way to give "online" is to do an EFT (electronic fund transfer) from your bank to the church account. Most banks do not charge for online transfers …

Online Giving Not rated yet
GivingRocket.com has done significant research in the area of online giving, and they offer a ton of helps for increasing funds for ministry. They recommend …

Clover is simple, inexpensive and extremely well-done. Not rated yet
Our church plant decided to use Clover for our church website and now for our online giving. They are less expensive than EVERYONE else we looked at and …

E-Giving Not rated yet
My church, Fort Caroline Baptist Church (www.FCBCJAX.COM)in Jacksonville, FL uses a company named (NCS Envelope Service)and the website (e-giving.org). …

Recordkeeping: Copies of Tithing Checks  Not rated yet
What are the rules with keeping copies of tithing checks? Should we keep copies and keep with our deposit accounting records and if so for how many years? …

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