Church administrators often face a frantic scramble as the year ends, striving to organize financial records before the new year begins. The pressure to distribute contribution receipts by the January 31st deadline frequently causes unnecessary stress for ministry leaders. Much of this anxiety stems from a lack of clarity regarding the specific IRS requirements for recording and acknowledging charitable donations. Understanding these regulations is the first step toward a more efficient and peaceful reporting season.
It is important to note that the legal burden of proof for tax deductions rests with the donor rather than the church. To claim a deduction, the IRS requires the donor to maintain proper documentation of their charitable giving. This requirement is typically satisfied through one of two primary methods:
1. Maintaining detailed bank records, such as canceled checks or official bank and credit card statements.
2. Obtaining a formal written acknowledgment from the organization that received the contribution.
1. Through bank records (check copies or bank/credit card statements)
2. With a written statement from the organization that received their donation
While churches are not obligated to send out donation receipts to their congregation’s members and donors, it is an act of common courtesy and an act of gratitude to send these receipts to everyone who has provided a donation to your ministry.
Many churches are moving to donation data tracking software to record these items. Most donation tracking software can even generate giving receipts. StartCHURCH offers a software known as Kingdom Steward, which allows you to print or email these statements directly to your donors, so they receive them promptly with less frustration on your part.
SPECIAL CONSIDERATIONS
As with anything, there are special circumstances that surround certain types of donations. These include:
• Noncash donations
• Quid pro quo situations
• Credit card processes
These types of donations must be handled differently to provide the church with a proper record of receipt and to provide the donor with a contribution receipt that is acceptable to the IRS for their tax deduction. Let’s review these rules separately to get a better understanding.
Noncash Donations
Churches and ministries receive donations of items all the time. Vehicles, equipment, instruments, buildings—you name it, and it has probably been given to an organization that requires it. But how do you properly record the receipt of these items for the individual that has given them?
The first thing to remember is that the organization cannot determine what the item is worth. That is up to the tax preparer for the individual. A contemporaneous written acknowledgment must be given, detailing what the item is and the condition that it is in. That written acknowledgement will then be taken to the tax preparer and used to itemize the deduction on their tax return
For items that are estimated to be worth more than 500 dollars at the time of donation, Form 8283 must be filed with the IRS by the donor. You must also file Form 8283 if you have a group of similar items for which a total deduction of over $500 is claimed. A contemporaneous written acknowledgment should still be issued to the donor.
Quid Pro Quo
This rule refers to donations to your organization in which the donor received something in return. As an example, if you were to sell coffee mugs at your church’s service for $10, and a member purchased one and gave a donation for a total of $40, their donation only counts for $30 since the item was to be bought at $10 dollars. The total amount that was given less the value of the item or service that was received in return will be counted as a tax-deductible donation.
When the donor gives a total of $75 or more and receives a service or item in return, a separate receipt must be given detailing a good faith estimate of the value of services or goods received.
Credit Card Processing
More and more organizations are moving to credit card processing companies to take donations on their behalf. It is important to keep in mind that the whole amount of their donation is considered, the processing fees are the responsibility of the organization. It should also be noted that the date that the donation finishes processing is the date that it will be received by the organization. This determines what year the donation will be tax-deductible. If the donation is given on December 30, but it doesn’t process until January 2, then the donation will be considered for the following year by the IRS. However, anything that processes by midnight on December 31 will be considered a donation that year.
END THE UNCERTAINTY
I strongly recommend getting a donation tracking software to handle your donations if you don’t already have one in place. Keeping track of these records without it can be a hassle, and a lot of them will track the information above without any extra headache. Some even generate your receipts with the necessary statement that “no goods were provided except for intangible religious services,” or in the case of quid pro quo that “other than those listed, no goods or services were provided except for intangible religious services.” Tracking these donations is often overlooked throughout the rest of the year, but the first month can cause stress and confusion that is unnecessary when the solution is right at your fingertips.
This article originally appeared on StartCHURCH.com and is reposted here by permission.