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7 Tax Rules You Must Know For Year-End Giving Receipts

By Kristen Alexander

In our digital age, nonprofit donations should be effortless. However, even in simplicity, there are crucial steps for responsible stewardship. Avoid the year-end rush by following these 7 critical rules for smooth and timely donation processing.

The Church's Responsibility to its Donors

Churches must address various donation management aspects, including providing giving statements and implementing a counting policy for fund accuracy and accountability.

Notably, donors claiming tax deductions for charitable contributions must bear the burden of proof, as stipulated by the Pension Protection Act (PPA) of 2006, which increased requirements for substantiating deductions on income tax filings.

For church members to claim a tax deduction, they need bank records or a written donation receipt. Churches must follow specific rules when issuing these receipts. Here are the guidelines:

Rule #1: Issue contribution statements by January 31

Taxpayers typically receive W-2, 1098, 1099-NEC, and other tax documents by the end of January. To deduct church donations, they need a contribution statement before filing. Announce to your donors that statements will be issued by January 31st, and advise them to wait for their statements before filing taxes.

Rule #2: The credit card rule

Numerous churches accept credit card donations. According to IRS Publication 526, contributions made with a bank credit card are deductible in the year of the charge. If a donation is made on December 30th but processed on January 1st, it counts for the following year. Ensure accurate contribution statements by adjusting records in such cases.

Rule #3: The quid pro quo rule

This rule mandates tracking church donations when donors receive something in return. For instance, if a church sells a sermon CD for $10.00 and a donor gives $50.00, the quid pro quo rule allows a tax deduction of $40.00 since the donor received an item in exchange for the donation. 

Rule #4: The $75.00 rule

The tax regulations mandate that donors must receive a separate written receipt for quid pro quo contributions exceeding $75.00. This receipt should detail the donation amount and provide a good-faith estimate of the value of the goods or services received in return. 

If you need help understanding tax regulations, let us handle your church's bookkeeping, ensuring compliance and accuracy. Learn how to have financial peace of mind by clicking the link below.

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Rule #5: The $250.00 rule

Similar to rules #3 and #4, this regulation specifies that donations of $250.00 or more, where the giver receives something in return, require special treatment. To qualify for a tax deduction, donors must receive a separate written receipt indicating the donation amount and stating that "no goods or services were provided except for intangible religious services" unless listed otherwise.

Suppose the giver didn't receive anything in return. In that case, the donation can be included in the annual statement along with other contributions, provided it is clearly stated that "no goods or services were provided except for intangible religious services."

Rule #6: The non-cash rule

This rule restricts churches from issuing receipts for non-cash donations. For instance, if a member donates a used computer worth $600.00, section 170(f)(8)(B)(i) prohibits the church from estimating its value and providing a receipt for that amount. Instead, the church should issue a contemporaneous written acknowledgment for the donation.

Rule #7: The $500.00 rule

This rule is relevant for donors and churches when a non-cash donation exceeds $500.00 in value. Churches frequently receive computers, desks, musical instruments, and office equipment. The donor must file Form 8283 with their tax return to claim a deduction for such contributions. This form serves a dual purpose: 

1. The donor can claim the value of the item given

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

Begin preparing your donation statements 

Ensuring accurate donation tracking and receipts is crucial for your church. If you lack a reliable system, we offer a solution. Call us at 770-638-3444 to learn about Giving Halo, our donation management system, and how our experienced ministry-minded bookkeepers can handle your organization's contributions so you can have peace of mind or schedule a call with our experts today using the link below.

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