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10 Important Steps for Tax Deductions
By Raul Rivera
Can you believe that the year is more than half over? In fact, most churches start planning their Christmas cantatas and plays in about 65 days. That reminds me of a super important event that is coming. Every year, churches have the duty of sending all of their donors a receipt for their taxes. Two years ago, a couple lost over $25,000.00 in deductions because the church's donation receipt did not contain the right information. That does not have to be your scenario. If keeping track of everyone’s giving and then sending out receipts is a requirement, then why not make it easy for yourself and use powerful tools that make it possible? Our new Cloud based Kingdom Steward™ makes it super easy. It even allows you to send IRS-compliant receipts through email by just clicking a few buttons.
What does your receipt say about your church?
Getting this right says a lot about the administration of your church. Good stewards pay attention to the details and sweat them out so that those they serve will not have to. Can your congregants rest assured that the receipt you send them is IRS proof? Are you certain your receipt is fully compliant? Let me give you the do's and don'ts of contribution statements.
1. Do make sure the name and address of the giver is correct: Believe it or not, many contribution statements have typos on the name and address. Before printing the contribution statements, review the names and addresses of your givers and make sure the information is correct.
2. Do give them out on or before January 31st: By the end of January, most taxpayers have received their W-2, 1098, 1099-misc forms, and other tax-related documents. In order for a taxpayer to deduct what they gave to the church they must receive their contribution statements before they file their tax returns. As a matter of practice, it is usually a good idea to make a public announcement that their statements will be issued by January 31st and that they should wait on filing their tax return until they receive the statement.
3. Do give a special acknowledgement when a donation is for $250.00 or more: Make sure you include the four pieces of additional information. I wrote about this in a recent article, which can be found at: http://startchurch.com/blog/view/name/irs-tells-couple-tithes-to-church-not-tax-deductible.
4. Do state whether each item is deductible: When your church issues a contribution statement, it normally lists the date of each contribution, the fund to which it was given, and the amount given. As a matter of clarity, your itemized contribution statement should state whether each item is deductible. There are some instances when a person makes a donation that is not tax deductible. Item 10 explains when a donation is not deductible. Below is an example of how a contribution statement should display each contribution.
Date Income Fund Deductible? Amount
1/8/2015 Tithes and Offerings Yes $100.00
1/15/2015 Tithes and Offerings Yes $110.00
5. Do not give a tax-deductible receipt for donated property: There are times when a person gives personal property to the church as a donation. In order for the giver to get a tax deduction, he/she must receive written acknowledgement from the church. See item six.
6. Do not estimate or appraise donated property: Section 170(f)(8)(b) and IRS regulation 1.170A-13(f) states that the written acknowledgement the church issues to the giver must not state the value of the donated item. In other words, the church is only allowed to give the donor a letter describing in detail the property that was donated and whether the church is able to use it to further its exempt purposes.
7. Do not give a receipt for donated time and services: Many churches this year will give a contribution statement to individuals who donated their time and services to the church. Though serving the church in this way is a noble thing, the tax code does not allow such individuals to receive a tax deduction for donated time and services.
8. Do not give a receipt for donated rent: Last year many pastors asked me if they were allowed to give their landlord a contribution statement for the discount he/she gave the church on the rent. This, too, is not tax deductible and the church must not issue a contribution statement for reduced rent.
9. Do not give a receipt for a donated car: If someone donates a car to your church, do not list the contribution in the normal contribution statement. In order for the donor to get a deduction, the church must give the donor a letter (contemporaneous written acknowledgment) that meets the requirements of section 170(f)(12). The letter must display the donor's name, address, Social Security number, vehicle identification number, and whether the church will use the car, give it to a needy family, or sell it. In lieu of the letter, the church can give the donor copy B of form 1098C.
10. Do not give a deductible receipt for a restricted donation: There are times when a donor makes a contribution to the church, but with strings attached. If a donor donates a gift but maintains control over how the church uses the gift, it is not tax-deductible. In keeping with item 4 above, you can list the contribution, but list it as not deductible.
One of the biggest desires that pastors and leaders have is to manage well the business and tax side of church/ministry. However, with the way that life is today, accomplishing that is increasingly difficult. Oftentimes, one feels like they have to choose between ministry and management. That does not have to be the case! You can actually have both. StartCHURCH has designed a conference to aid you in learning how to create a structure that grows as your church/ministry grows. I invite you to attend one at a city near you. It will change the way you do ministry forever.