What are Donation Receipts?
In the simplest of terms, a donation receipt is proof that a donor made a monetary or in-kind contribution to an organization.
They are often letters or emails sent to a supporter after a donation has been made.
Many nonprofits send receipts out by the end of the year the gift was given or in January of the following year. However, nonprofits should strive to send out donation receipts sooner rather than later– donors are more likely to give again if their donations are acknowledged within the first 48 hours.
Why are Donation Receipts Important?
1: Deductions on Tax Returns: In order to receive the tax deductions associated with charitable giving, donors need documentation.
2: Confirmation: Providing donation receipts lets donors know that their contributions have been received.
3: Financial record keeping: Donation receipts are an easy way for donors to keep track of their finances when it comes to charitable giving.
1: Legal requirements: The IRS requires donation receipts in certain situations. Failure to send a receipt can result in a penalty of $10 per contribution, up to $5,000 for each specific campaign.
2: Tracking donation history: Sending out donation receipts is another way that organizations can keep track of their individual supporters’ donation histories.
3: Accounting: Donation receipts also provide organizations with clear and accurate financial records.
When are Donation Receipts Necessary?
The token exception applies when nonprofits provide donors with insubstantial goods or services in exchange for a donation.
The IRS defines goods and services as insubstantial when: “The payment occurs in the context of a fund-raising campaign in which a charitable organization informs the donor of the amount of the contribution that is a deductible contribution” and one of the following occurs:
- The fair market value of the benefits received does not exceed the lesser of 2 percent of the payment or $106 or,
- The payment is at least $53, the only items provided bear the organization’s name or logo (for example, calendars, mug or posters), and the cost of these items is within the limit for “low-cost articles,” which is $10.60.
The membership exception states that nonprofit organizations don’t have to provide a receipt for insubstantial goods and services given in exchange for contributions made by donors who have annual memberships.
The exception applies when goods and services are given in exchange for memberships under $75 and consist of rights or privileges that occur annually.
The IRS defines these privileges as:
- Free or discounted admissions to the charitable organization’s facilities or events.
- Discounts on purchases from the organization’s gift shop
- Free or discounted parking.
- Free or discounted admission to member-only events sponsored by an organization, where a per-person cost (not including overhead) is within the “low-cost articles” limits.
What Should be Included in a Donation Receipt?
1: The donor’s name
2: The organization’s name, federal tax ID number, and a statement indicating that the organization is a registered 501(c)(3)
3: Date of the donation
4: The amount of money or a description (but not the value) of the item(s) donated. The donor, not the nonprofit, is responsible for assigning a cash value of donated items or in-kind contributions.
5: A statement indicating whether any goods or services were provided in exchange for the donation:
- If no goods or services were given to the donor in return for the contribution, the nonprofit must say so.
- If the gift was $75 or more, and the nonprofit provided something in return (i.e., tickets to an event), then the organization must provide a good-faith estimate of the value of the goods or services provided to the donor (in this case, the market value of the event tickets).
6: Name and signature of authorized representative such as a board member or head of department.
7: A disclosure, if necessary. These vary from state to state, so double check to make sure you’re including the required disclosure statements for all states that your donors are contributing from.
You do not need to include a donor’s social security number or tax ID number.
Questions about Donation Receipts
There are a few more things you should probably know about donation receipts. Click on the section you’re interested in for more information.
Many donors enjoy the ease of giving to an organization straight from their paycheck.
If this is the case, donors can use the following documentation as a donation receipt:
- A pay stub, W-2, Wage & Tax Statement, or other employer document that delineates the withheld amount.
- A pledge card that includes a statement that the organization didn’t provide goods or services in exchange for payroll-deducted contributions.
Each payroll deduction of $250 or more is treated as a separate contribution and is not aggregated.
If a donor received goods or services in exchange for a donation greater than $250, the donation receipt must describe those goods or services and provide a good-faith estimate of their value.
Donors must subtract the value of the goods or services from the contribution deduction (this is especially important when you’re taking registrations for a fundraising event).
Goods or services include:
- Benefits or privileges
However, there are exceptions when it comes to goods and services.
These exceptions take the form of:
- Insubstantial goods and services
- Membership benefits
- Intangible benefits
A donor must secure a donation receipt if they make a contribution greater than $250 in the form of unreimbursed expenses (i.e., transportation costs paid in order to perform donated services).
Additionally, a donor must keep a record of these expenses.
If your donors are claiming contributions valued at over $5,000, they need an official appraisal made by a qualified appraiser to receive the adequate tax deduction.
If the vehicle’s value is between $250 and $500, you can use a standard donation receipt.
If the vehicle is sold, include the date of sale as well as gross profits made.
The donation receipt should inform the donor that the deduction they take on their taxes can’t be more than the gross profits you made from the sale.
If your nonprofits keeps the vehicle, the donation receipt should state the intended use and how long your organization will keep the car.