How to Create Donation Receipts for Your Donors in 2022
Nonprofits must provide written documentation to people who contribute to their organization. Learn best practices for complying with IRS donation receipt regulations while cultivating donor relationships.
Effective fundraising for nonprofits includes seeking various funding streams, including grants, corporate sponsorships, and charitable events. However, the most common form of fundraising is to obtain donations from individual donors.
Individual donors can make small donations of a single dollar or tens of thousands. They may also provide in-kind donations – also called non-monetary contributions – such as furniture, food or professional services. Individual donations provide needed support for the work of a nonprofit organization while building a community of support around the nonprofit organization’s mission.
If your nonprofit accepts individual donations, you need to know when and how to create a nonprofit donation receipt for each donor’s tax return.
Overview: What is a donation receipt?
Donations made to a 501(c)(3) nonprofit organization may be used as a tax deduction on the donor’s federal income tax return. However, in order for donors to take advantage of this tax deduction, they must keep written documentation for any donation valued at $250 or more.
Donors rely on nonprofits to send them a 501(c)(3) donation receipt for their records to prove to the Internal Revenue Service (IRS) that they made a charitable contribution this year- the.
When does the IRS require donation receipts?
Donation tax receipts are required for any contribution of $250 or more to a 501(c)(3) nonprofit organization. This includes both cash contributions and non-cash donations with an estimated value of $250 or more.
Failure to follow this written disclosure policy may result in an IRS penalty of $10 per contribution to the nonprofit, up to a maximum of $5,000 for each fundraising event or mailing. postal.
Rules and Regulations Regarding Donation Receipts
The IRS outlines the specific details that must be included in donation receipts, as well as some exceptions and special rules for different donation scenarios. It is always important to seek legal advice and look directly at IRS regulations to inform the operations of your nonprofit organization. However, the basics of these requirements are summarized below:
- Details required: All donation receipts must include the name of your organization, the amount of the donor’s cash contribution, and a description (but not a monetary value) of any non-monetary contribution.
- Verification of the no quid pro quo: If the donor received nothing for their contribution, this should be noted on the donation receipt.
- Description of services provided: If your nonprofit provided goods or services in exchange for a donor’s contribution, your donation receipt should provide a description of those.
- Verification of intangible religious benefit: If the goods or services provided by your nonprofit organization in exchange for a donor’s contribution consisted solely of intangible religious benefits, such as admission to a religious ceremony or materials used in that ceremony, this must be indicated on your donation receipt. You do not have to detail these goods or services, but simply use the term “intangible religious benefits” to describe them.
- Disclosure of any quid pro quo contribution: If a donor receives goods or services beyond the intangible benefits for their donation, their contribution is tax deductible only up to the amount that exceeds the fair market value of what they received in return. . For example, if they donated $100 to your nonprofit in exchange for a $30 concert ticket, the amount eligible for tax deductions is $70. Your donation receipt should show the amount of the donor’s contribution, a good faith estimate of the fair market value of what they received in exchange for the contribution, and a note that, for federal income tax purposes income, their contribution is only deductible minus the value of what they received.
- Delivery on time: For a tax-deductible donation receipt to be considered contemporaneous with a donor’s donation, the donor must receive written acknowledgment of the contribution on or before the date the donor files their federal income tax return. for the year of the contribution or the due date of the return, whichever comes first.
How to Create an IRS Compliant Donation Receipt
Your nonprofit accounting department can create IRS-compliant donation receipts in a few simple steps.
1. Create a template on your association letterhead
Your donation receipt should look official, so create a template on your nonprofit’s letterhead. Include stock text with fill-in-the-blank spaces for the donor’s name, date of donation, amount, and description of contribution.
Under donor-specific information, include common language to address any matching situations and disclose to the donor the amount of their gift that may be tax deductible.
Ask your CEO or another senior manager at your nonprofit to sign each letter.
2. Make a list of donors of the year
Pull data from your customer relationship management (CRM) software or online fundraising platform on donations received during the time period for which you want to send donation receipts. This will give you donor information as well as donation amounts and dates that you will need to insert into your donation receipt template.
Some nonprofits will pull data and send donation receipts once a year at the end of the year. However, you don’t have to wait until then to send them. You can also choose a more frequent monthly or quarterly sending cadence.
Also, while the IRS only requires a donation letter of $250 or more, many nonprofits follow the best practice of sending one for every donation, regardless of size. This translates to fewer follow-up questions from donors and gives your nonprofit a chance to thank them again for their donations.
3. Mail or email donation receipts to your supporters
The last step is simple. Once you have created a donation receipt letter, send it to the donor for their record keeping. Some nonprofits prefer the formality of sending hard copies of donation receipts to their supporters. However, more and more people choose to send receipts by email.
Sending donation receipts by email makes the process quick and easy, especially if you use an online fundraising platform programmed to send them automatically. Some fundraising software options can be configured to email a thank you note with a PDF of an official donation receipt attached to the email immediately following a supporter’s donation.
You can always make a note in your emails to supporters that you are happy to send a hard copy on request.
3 Best Practices When Writing Donation Receipts
Once you’ve covered the basics required by the IRS, there are a few best practices you can follow to get the most out of your donation receipts and ensure they’re fully compliant.
1. Avoid promising tax deductions
A charitable donation receipt promises nothing to a donor as to how their tax return will turn out. It is simply provided for their own documentation of their charitable giving this year. Since you don’t know each donor’s tax status, don’t tell them that their donation is tax deductible. Tell them rather than their contribution may be tax deductible depending on their situation.
You can also choose to simply indicate the amount of the contribution without going into detailed tax details. Sometimes less is more. Here are two examples:
- Thank you very much for your cash donation of $175 to Save the World, which we received on March 15, 2020. No goods or services were provided in exchange for your contribution.
- Thank you for your cash contribution of $500 which the Stray Cats Emergency Fund received on January 3, 2021. In exchange for your contribution, we offered you a cat tree with an estimated fair market value of $55 .
2. Remember to say thank you
Donation receipt letters may have certain formal requirements, but they are also an opportunity to thank your donors again. Leave some space in your letter to share a few quick notes about what your donors’ donations have helped your nonprofit achieve. Remind them of your mission and thank them for being part of it.
Taking the time to thank your donors strengthens your relationship with them and makes it more likely that they will want to stay connected to your work and support you again.
3. Re-offer opportunities to support your work
Recurring giving from donors can be a vital part of a nonprofit’s fund development. Use your donation receipts to offer donors the opportunity to re-engage with your work. This could be telling them about an upcoming event you are hosting, mentioning volunteer positions they might be interested in, or asking them to make a new donation to your new initiative.
Since many of your donation receipts are likely sent to new donors, use them as a chance to build your relationship with that person and turn them into a repeat donor.
Meet IRS requirements and improve donor management with your donation receipts
One of the inevitable tasks you will face when starting a nonprofit is meeting the record keeping and reporting requirements for your 501(c)(3) nonprofit status. . Complete and timely donation receipts are one such requirement. However, by using best practices, you can turn this IRS requirement into a donor management opportunity.