8 Important Rules for Creating Donation Receipts

Written by Tyler Phipps on Jan 10, 2019 in IRS Compliance

One of the best ways for a church to show its gratitude towards members’ faithful giving is by providing donors with donation receipts. Receipts serve as a way for the church to maintain accuracy in recording its contributions. They also alleviate the burden of proof that falls on donors when applying for a tax deduction. 

The Pension Protection Act (PPA) of 2006 stressed the significance of issuing proper donation receipts. The law increased the requirements for donors to substantiate (or prove) their giving when claiming a charitable deduction on income tax filings. (See section 1217 of the PPA.)

For one of your church members to receive a tax deduction for a donation, they must be able to show one of two things:

  1. Bank records (check copies, bank statements, credit card statements); or
  2. A written statement from the organization (i.e., your church) to which they gave.

Keep these 8 important rules in mind before distributing receipts

Rule #1: Distribute contribution statements no later than January 31st

In preparation for tax season, provide church members with contribution statements before the end of January. Taxpayers need this document to record donations as a deduction on their tax return. 

It's beneficial to both the church and its members to acknowledge that contribution statements will be released by January 31st. Be sure to remind members to wait to file their returns until these statements are released.

Rule #2: The credit card rule

It's becoming more common for churches to accept donations using credit/debit cards. IRS Publication 526 states that charges to a bank credit card are deductible in the year that the charge is made.

So, if a member makes a credit card donation on December 30th, but the church doesn't charge the card until January 1st, then the donor cannot deduct the amount until the following year. If you come across this situation, adjust your records so the contributions statement is correct for this donation. 

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Rule #3: The quid pro quo rule

Sometimes a donor might receive something in exchange for making a donation. Of course, it's best practice for ministries to keep track of such exchanges. This particular case is known as quid pro quo. 

Here's an example: A church is selling tickets to a performance for $10, but a donor gives the church $40 in exchange for the ticket. According to the quid pro quo rule, the donor in this situation can deduct $30 since he or she received a ticket with a $10 value. 

Rule #4: The $75 Rule

If a donor gives a quid pro quo donation of more than $75, the IRS requires this donor receive a separate written receipt stating how much was donated. This receipt should include a good faith estimate of the goods or services the donor received in return. 

This $75 (or more) amount is not the difference between the donation and value of goods or services, but the actual amount donated by the giver. Here’s an example:

A church's membership program offers members to become a “ministry partner” when they pledge to give $100 a month. Members also receive a gift basket (worth $50) when they give their first $100.

These particular gift baskets were donated to the church. When the church gives the baskets away to the donors, the receipt needs to state only $50 was tax deductible (under the quid pro quo rule) since the basket’s estimated value was $50.

Because more than $75 was originally donated (though only $50 counts as tax deductible), the donor must be given a separate, written receipt to get a tax write off. This receipt should state a good faith estimate of $50 was received in goods or services. 

Rule #5: The $250 rule

Like rules #3 and #4 above, this rule requires any donation of $250 or more be treated differently if the giver received something in return. To get a tax write off, the donor must get a separate written receipt stating how much was donated and that "other than those listed, no goods or services were provided except for intangible religious services.”

In contrast, if the giver didn't receive anything in return, you can itemize the deduction on the annual statement. Make sure the statement says that "no goods or services were provided except for intangible religious services.”

Rule #6: The noncash rule

This rule disallows churches from providing receipts for donations that are not cash. For example, if an individual donates a used computer, the church is prohibited by section 170(f)(8)(B)(i) from estimating the value of the donation and giving a receipt for that amount. So, if the computer is worth $600, the church cannot give the donor a receipt stating a value at $600.

For best practice, issue a contemporaneous written acknowledgment. 

What is considered contemporaneous? A written acknowledgment is considered contemporaneous when it's issued before a taxpayer files their return for the taxable year.  

Rule #7: The $500 rule

This is a similar rule to #6, except that the noncash donation is valued at more than $500. Common donations this size include computers, desks, pianos, organs, and office equipment. 

If the donor wants to receive a tax write off for this type of donation, they must file Form 8283 with their tax return. This form is beneficial to both the donor and the church. 

The donor can claim the value of the item given, and the church can sign off on the form as acknowledgment in receiving the gift.

Rule #8: Donated Property

Donation receipts sent to members should never state a value for donated property. It's the donor’s responsibility to determine the value of the donated property. 

We’re here to help you!

Understanding donation receipts is just the first step! Make sure you have a process that helps you keep track of your donations. At StartCHURCH, we can help you set a safe and reliable system in place. If you have more questions about donation receipts, give us a call at, 877-494-4655. 

Our bookkeeping service will give you the tools you need to manage your church’s finances and giving statements. With the service, you'll also receive a FREE QuickBooks account and a subscription to our donor management program, Kingdom Steward. Having a StartCHURCH bookkeeper on your team will save you valuable time and money. 

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Raul Rivera

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