7 Important Tax Rules for Year-End Giving Receipts

By Kristen Alexander

Read Time: 4 Minutes

With almost everything digitized in the 21st Century, it stands to reason that receiving donations as a nonprofit organization should be simple. And for the most part, it is! But even in the simplest of tasks, there are things to remember when accepting contributions and fulfilling your responsibility as a good steward of your organization. 

The last thing you want to do following the New Year is scramble to put together documents for your members showing what they donated so they can file their taxes on time. So what can you do to make this easier? Here are 7 important rules to follow!

The church's responsibility to its donors

There are several aspects that churches should be aware of when managing donations. For example, providing giving statements to donors and having an appropriate counting policy are key for accountability and accuracy in managing church funds.

The truth of the matter is that when a donor claims a tax deduction for charitable contributions given to a nonprofit organization, the burden of proof falls on them. The Pension Protection Act (PPA) of 2006 increased the requirements for donors to substantiate their giving when claiming a charitable deduction on income tax filings.

Therefore, in order for your church members to receive a tax deduction for a donation, they must be able to show one of two things: bank records or a written statement from the organization to which they gave, called a donation or giving receipt.

There are several "rules" that your church should be mindful of before distributing donation receipts. Let's take a look at the rules below.

Rule #1: Distribute contribution statements on or before January 31st

By the end of January, most taxpayers have received their W-2, 1098, 1099-NEC, or other tax-related documents. For a taxpayer to deduct a church donation, they must receive a contribution statement before filing a tax return.

It's usually a good idea to make an announcement that your contribution statements will be issued to church members by January 31st. Ideally, members should wait to file their tax returns until they have received their statements.

Rule #2: The credit card rule

Many churches now accept credit card donations. IRS Publication 526 states that contributions charged to a bank credit card are deductible in the year that the charge is made.

This means that if an individual makes a credit card donation on December 30th, but the church does not actually run the card until January 1st, the donor does not get to write it off until the next year. If this happens to you, adjust your records to ensure that the contribution statement is correct.

Rule #3: The quid pro quo rule

This rule requires that your ministry keep track of donations to your church when the donor receives something in return. An example may be the recording of a Sunday sermon. A church sells a CD of the sermon for $10.00, and the donor gives the church $50.00. The quid pro quo rule allows the donor to get a tax-deductible donation of $40.00 because the giver received something in return for the donation. 

Rule #4: The $75.00 rule

Tax regulation requires a donor who gives a quid pro quo contribution exceeding $75.00 to receive a separate, written receipt that states how much was donated. The receipt should include a good faith estimate of the value of the goods or services the donor received in return. 

Rule #5: The $250.00 rule

Like rules #3 and #4 above, this rule requires that any donation of $250.00 or more be treated differently if the giver received something in return. For the donor to get a tax write-off, they must get a separate, written receipt stating how much was given and that "other than those listed, no goods or services were provided except for intangible religious services."

However, suppose the giver did not receive anything in return. In that case, you can itemize it into the annual statement with any other donations so long as you include that "no goods or services were provided except for intangible religious services."

Rule #6: The noncash rule

This rule prohibits churches from providing receipts for donations that are not cash. For example, suppose a member donates a used computer. In that case, the church is prohibited by section 170(f)(8)(B)(i) from estimating the value of the donation and issuing a receipt for that amount. Therefore, if the computer is worth $600.00, the church cannot give the donor a receipt for $600.00. Instead, the church should issue a contemporaneous written acknowledgment.

Rule #7: The $500.00 rule

This rule applies to donors and churches when a person makes a noncash donation valued at more than $500.00. Churches often receive donations such as computers, desks, pianos, organs, drums, and office equipment. For the donor to write off such a donation, he must file Form 8283 with his tax return. The purpose of this form is twofold: 

1. the donor can claim the value for the item given

2. the church can sign off on the form to acknowledge receiving the gift.

Start preparing your giving statements 

It is essential that your church has a proper method to keep track of donations and create proper donation receipts for your givers. If you do not already have a reliable and safe system, we can help you!

Please call us today at 877-494-4655 to learn more about our donation management system Kingdom Steward and how our team of bookkeepers can help manage your organization's generous contributions—so you don't have to wonder if you're doing it right!

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