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07 Jan 2018

Everything You Need to Know About Donation Receipts

Raul Rivera

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

During this time of year, many pastors and ministry leaders are asking, “What do we need to include on the donation receipts we give our members?”

This is an important question, because the truth of the matter is when a donor claims a tax deduction for the tithes and offerings given to your church, the burden of proof falls upon the donor. Therefore, issuing a proper donation receipt to your donors is important.

For instance, the Pension Protection Act (PPA) of 2006 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.)

Therefore, in order for one of your church members to receive a tax deduction for a donation, he/she 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 he/she gave.

What your church needs to know about donation receipts

Since your church relies on the contributions of your church members, there is no doubt that you will provide your members with donation receipts. 

Doing so is one way to say “thank you” to your donors for their faithful giving, while also helping to alleviate their burden of proof for the IRS.

There are several “rules” that your church should be mindful of before distributing contribution statements to your members. Let us take a look at the rules below.

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7 rules to know about donation receipts 

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

By the end of January, most taxpayers have received their Form W-2, 1098, 1099-MISC, or other tax-related documents. In order for a taxpayer to deduct a church donation, he/she must receive a contribution statement before filing a tax return.

It is usually a good idea to make an announcement that you will issue contribution statements to your church members by January 31st. Ideally, members should wait on filing their tax returns until they have received their statements.

(Recommended reading: "Restricted Offering vs. Designated Offering")

Rule #2: The credit card rule

Many churches now accept donations via credit/debit cards. 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 is not able to write it off until the next year. If this happens to you, adjust your records to ensure that the contribution statement is correct.

(Recommended reading: "How Pastors Misuse Credit Cards & What To Do About It")

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 of a quid pro quo donation may be the recording of a Sunday sermon. A church sells a CD of the sermon for $10.00, but the donor gives the church $50.00 for the purchase. The quid pro quo rule allows the donor to take a tax deduction of $40.00 because the giver received something in return valued at $10.00. 

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. Let me give you an example.

Several years ago, I attended a revival at a church in Florida. The traveling evangelist had a table in the lobby where he sold some of his books and CDs. He also had a special table where someone could sign up to become a “ministry partner.”  

All that someone had to do that day was to contribute $100.00 and make a pledge to give $100.00 per month. In return, that person would receive newsletters, prayer cards, and special reports. To top it off, the individual would also get a beautiful gift basket (worth over $50.00).

Though the baskets had actually been donated to the ministry, when the ministry gave the baskets away to those who made the initial $100.00 contribution, the receipt had to state that only $50.00 was tax-deductible (under the quid pro quo rule) because the basket that the donor received in return was worth $50.00.

Under the $75.00 rule, because more than $75.00 was originally donated (though only $50.00 counts as tax deductible), the donor must receive a separate, written receipt (to get a tax write off) stating a good faith estimate of $50.00 received back in goods or services. 

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. In order for the donor to get a tax write off, he/she must obtain 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, if the giver did not receive anything in return, you can itemize it on 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, if a member donates a used computer, 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 indicating a value of $600.00

Instead, the church should issue a contemporaneous written acknowledgment. Those who have attended our conference can find an example of what that looks like in the conference manual.

Rule #7: The $500.00 rule

This rule applies to donors and to churches when a person makes a noncash donation that is valued at more than $500.00. Churches often receive big donations such as computers, desks, pianos, organs, drums, and office equipment. 

In order for the donor to write off such a donation, he/she must file Form 8283 with his/her tax return. The purpose of this form is twofold: 

  1. the donor can claim the value for the item given; and 
  2. the church can sign off on the form to acknowledge receiving the gift.

You do not have to do this alone!

Understanding the rules of donation receipts is an important aspect of understanding the process of handling donations, but it is only a part. It is critical that you implement a process that helps you to create proper donation receipts for your donors and helps you to keep track of donations. If you do not already have a reliable and safe system in place, we can help you.

Our Bookkeeping Service provides you with the necessary tools to assist you in keeping track of your church’s finances and giving statements. Through our Bookkeeping Service, you will have your own personal bookkeeper, monthly reports, a subscription to Kingdom Steward, and a CPA to complete your compilation documents.

If you have questions regarding your church’s finances or this invaluable service, call our office today at 877-494-4655. One of our knowledgeable staff members will be happy to answer your questions!

Get Your Church’s Finances In Order Today!

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Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera

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About the Author

Church Planter. Speaker. Author. CEO. Raul Rivera has had ample experience in the church planting world. His current venture, StartCHURCH, has helped 1000's of churches to start right. Raul has compiled an array of manuals and software tools that help churches stay compliant with the IRS. He also hosts over 35 national conferences per year, training pastors on how to launch their churches. Raul is married to his wife Genel, and they and their five children live in Atlanta, GA.