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Imagine this scenario:
While having her breakfast, Caitlin sees a Facebook ad sharing a photo of an injured rescue cat. Caitlin loves cats, and furthermore, her cat Mr. Paws died only a few months back. She doesn’t feel ready to adopt or foster just yet, but she’s motivated to donate and help these animals that she loves so much! Moved and happy to help, she quickly donates $50. And then… Nothing happens. Caitlin isn’t sure if the donation went through, so confusion settles in. Two days later, she sees the Facebook ad once more and she wonders if her donation made any difference to the life of the rescue cat or if the nonprofit she donated to was a ‘legitimate’ nonprofit in the first place.
Do you think Caitlin will donate to this nonprofit again?
Chances are, she won’t.
Effectively managing fundraising activity through identifying, thanking, and nurturing donors is essential to effective fundraising. But managing this can also be a challenge, especially when it’s added on top of the workloads of stressed nonprofit teams.
What are donation receipts?
Simply put, a donation receipt is a written note acknowledging a donor’s monetary or non-monetary contribution. This acknowledgement is made by the recipient nonprofit organization. Donation receipts are of legal importance to donors and of practical importance to nonprofit organizations. In the United States, nonprofit organizations aren’t legally required to acknowledge a contribution. However, without a written acknowledgment, donors can’t claim their tax deduction. Therefore, it’s considered a best practice in donor stewardship that the organization assists their donors by providing timely, written donation receipts.
Why are donation receipts valuable?
Choosing not to send and optimize donation receipts is, essentially, choosing to leave valuable funds and donor relationships on the table.
1. Meeting IRS requirements
Over the past years, the IRS has been taking a stricter approach with tax deductions. While nonprofits don’t face IRS penalties for failing to issue donor receipts, donors’ tax deduction claims can be rejected due to inadequate donor receipts. This can, in turn, jeopardize donor relations. It’s crucial to include all the right information in a donation receipt so your donors can claim their charitable deductions and track their giving and their finances.
2. Better donor relations
Like Caitlin from the start of our article, donors want to know that their donations have been well received – and this is exactly what donation receipts help accomplish. Custom, prompt, and well-designed donation receipts can help you increase revenue and steward donors in the long term.
3. Information management
Donation receipts will help you keep track of donors’ giving history with your organization, which can serve many purposes further down the line. For example, when you have more information about a donor’s giving history, you’re able to better customize and personalize your future communications. Donation receipts can also help your nonprofit keep clear and accurate financial records. By understanding the importance of donation receipts and optimizing the process of issuing them, you can raise significantly more funds for your organization, and do so faster.
When are donation receipts required?
For monetary donations under $250, donors can use their bank record to claim their tax deductions. If the donation is higher than $250, the donor needs a written donation receipt from the nonprofit they donated to.
A donation receipt is also required when a donor received goods or services in exchange for a single donation greater than $75.
If a donor has their donation deducted from their salary, donors can use the following to claim their tax deductions:
- Pay stub, W-2, Wage & Tax Statement, or other employer document that sets out the withheld amount.
- A pledge card that includes a statement that the organization didn’t provide goods or services in exchange for payroll-deducted contributions.
Non-cash donations under $500 in value require a written donation receipt unless the items were put in unmanned donation bins, like the Goodwill drop off boxes.
Non-monetary donations over $500 in value require a donation receipt and a record of how and when your nonprofit organization acquired the items. Non-monetary contributions that exceed $5,000 in value will also need a written appraisal from a qualified appraiser.
Source: IRS Publication 1771: Charitable Contributions: Substantiation and Disclosure Requirements
Here are some exceptions to these rules as stated by the IRS:
The token exception
This applies when nonprofits provide donors with insubstantial goods or services in exchange for a donation. The IRS defines goods and services as insubstantial when: “The payment occurs in the context of a fund-raising campaign in which a charitable organization informs the donor of the amount of the contribution that is a deductible contribution” and one of the following occurs:
- The fair market value of the benefits received does not exceed the lesser of 2 percent of the payment or $106 or,
- The payment is at least $53, the only items provided bear the organization’s name or logo (for example, calendars, mug or posters), and the cost of these items is within the limit for “low-cost articles,” which is $10.60.
The membership exception
The membership exception states that nonprofit organizations don’t have to provide a receipt for insubstantial goods and services given in exchange for contributions made by donors who have annual memberships. An annual membership benefit is considered to be insubstantial if it is provided in exchange for an annual payment of $75 or less and consists of annual recurring rights or privileges, such as:
- Free or discounted admissions to the charitable organization’s facilities or events
- Discounts on purchases from the organization’s gift shop
- Free or discounted parking
- Free or discounted admission to member-only events sponsored by an organization, where a per-person cost (not including overhead) is within the “low-cost articles” limits.
Example of a membership benefits exception: If a charitable organization offers a $75 annual membership that allows free admission to all of its weekly events, plus a $20 poster, a written acknowledgment need only mention the $20 value of the poster, since the free admission would be considered insubstantial and, therefore, would be disregarded.
When are donation receipts sent?
The IRS delineates that donation receipts must be provided “in writing, at the time of solicitation or when the payment is received, and in a way that will come to the attention of the donor,” according to IRS Publication 1771. Most nonprofit organizations send out donation receipts to donors no later than January 31 of the year following the date of the donation. IRS sets forth that for the donation receipt to be considered contemporaneous with the donation, a donor must receive it by the earlier of: the date on which the donor actually files his or her individual federal income tax return for the year; or the due date (including extensions) of the return. However, most nonprofit professionals recommend sending out donation receipts within 48h of the donation being made, ideally sooner rather than later.
Pro tip 1: Consider (also) issuing donation receipts all at once, at the end of the year. This would mean that every individual donation within a given year would get consolidated into one record. This makes it easier to organize the data down the line – both for your accountant and your donors.
Pro tip 2: Automate your donation receipts by using an online donation system that will do just that for you, and so much more. GiveForms pulls relevant information from the donation, such as: donor name and address, donation date, and the total amount of the donation. A donor receipt is immediately created and automatically emailed to the donor. Alternatively, donors can opt to receive a cumulative receipt at the end of the year.
How do donation receipts work?
As long as they contain the right information, donation receipts can take many forms and be sent out in many different ways: as postcards, emails, or letters. However, with online donations in particular, automated email donation receipts have become the norm. And for a good reason: they save time and energy, relieve stress, and reduce human error -- especially so when they are integrated with an online donation tool.
GiveForms, for example, lets you seamlessly embed a donation form on your website, allowing visitors to donate using credit card, PayPal, Google Pay or bank transfers, and also sends out customized, branded donation receipts to your donors.
These steps are as follows:
- A donor makes a donation using credit card, PayPal, Google Pay or bank transfers.
- Once a donation comes in, GiveForms automatically generates the receipt with a donation ID, organization name and address, and signature. You can customize donation receipts to include your logo and custom messaging.
- The donor immediately receives a mobile friendly, branded email receipt.
What do donation receipts need to include?
The form the donation receipt takes doesn’t matter. The donation receipt can take a variety of forms – a thank you letter, an automated email receipt, a postcard, etc. However, whatever the form, every donation receipt must include the following elements to meet the standards set forth by the IRS:
Name of the donor and name of the nonprofit
Every donor receipt should include name of the donor and name of the nonprofit. The nonprofit’s address and EIN (Employer Identification Number) is not required, however it’s a best practice to include both of those for the convenience of the donor, who is required to have records of them. Also include a statement that your nonprofit organization is a 501c3 tax-exempt organization.
Note: It’s not necessary to include the donor’s social security number or tax identification number.
Including the donation date on the donor receipt isn’t technically required by the IRS. However, like with the nonprofit’s address, the IRS requires donors to keep a record of their donation dates. Since many donors are unlikely to keep such detailed financial records, including the contribution date in the donation receipt is a great way to help your supporters get the tax benefits they’re seeking.
Always include the donation amount in your donation receipt for monetary contributions (made either via checks, credit card, or payroll deduction).
The IRS also sets forth that a separate donation receipt may be provided for each single contribution of $250 or more, or one donation receipt, such as an annual summary, may be used to substantiate several single contributions of $250 or more.
If the donation was $75 or more, and the nonprofit provided goods or services in return, then the organization must provide a good-faith estimate of their value.
Description of non-monetary donations
If the donor made non-monetary contributions, include a detailed description of each item in the donation receipt. You can group similar non-monetary items together (like food or decorations), but try to be as specific as possible when describing non-monetary donations. Don’t include a cash value for non-monetary items as you might undervalue or overvalue an item. The donor is responsible for assigning a monetary value to non-monetary donations. Insubstantial values need not be recorded.
“For a donation of real property, it is recommended to put the physical location on the receipt, this way it will be easy for the IRS to match it to the property appraisal. For stock donations, the number of stock shares as well as the company name should be reported.” - Clark Nuber PS, 2013.
A statement indicating whether or not any goods or services were provided in return for the gift
The IRS makes a distinction between donors that receive goods or services in return for their donations and those that don’t. This distinction is made because only the amount that exceeds the value of the goods or services offered in return is considered tax deductible. This statement doesn’t have to be complex, but it needs to be a part of a donation receipt. If no goods or services were provided in return for the donation, it can be as simple as “no goods or services were provided in return for this gift.” If any goods or services were provided by the nonprofit in exchange for the donation, include a description and good faith estimate of the value of those goods or services.
For example, if a donor gave money and in return, they attended a brunch, that is considered goods or services. In that case, you need to provide a description of what she received and approximately how much those goods or services are worth. Some goods are considered insubstantial and do not qualify as ‘good or services in return for the donation’ (e.g. cheap pens or mugs with your logo.)
Pro tip: If you’re a religious organization, you must include a statement indicating that “intangible religious benefits” were provided.
Name and signature of authorized representative
Include the name and signature of an authorized organizational representative such as a board member or head of fundraising department.
In some states the charitable registration regulations require a disclosure statement on written solicitations and gift acknowledgments, so be sure to include any required disclosure statement when your nonprofit sends an acknowledgment of any gift/pledge, as applicable. Read more about state charitable registration and disclosure requirements. Rules differ from one country to another, so check out your relevant government websites for more information:
Bonus tips for writing a great donation receipt
The same goes here as with other forms of donor communications: personalization goes a long way. When you send a donation receipt, include the donor’s name (at the very least in the salutation). Using the donor’s first name reassures them that the data is accurate, pertaining to them, and that it comes from a trustworthy source.
Always send it Oout
Even though the IRS only requires receipts for donations over $250, it’s best to provide a receipt for every donation. This will make your donors feel appreciated and valued, no matter the size of their gift.
Say ‘Thank you’
Donation receipts can sometimes feel very transactional. To build strong relationships with your donors, you should look for every opportunity to do so. And saying thank you is the first step to building a good relationship with your donors.
Don’t state that a contribution IS deductible
Instead, in your donation receipt, state that the contributions may be deductible, based on the donor’s individual tax situation.
Keeping copies of the donation receipts will help you stay on top of your information and data management. If you are storing your donation receipts on a cloud-based system, download them at regular intervals.
Pro tip: Make sure you give each donation a unique serial number or donation ID. This will help you stay organized and find donation receipts much faster. If you use system like GiveForms, this is done automatically.
Share about the impact
Move beyond the dry legal language and tell your donors how will your organization use their donation. What will their contribution help accomplish? What objectives are you working towards?
Sample donation receipt
Ready to take your donation receipts to the next level?
Let’s go back to Caitlin from the beginning of this article. Imagine that, following her donation, Caitlin immediately received a branded email acknowledging her donation with a heart-felt thank-you. Perhaps that email even included details on how her donation will be used, perhaps to buy better veterinary supplies for taking care of rescue cats. At the end of the letter, the organization would inform Caitlin that they will keep her posted with their work. In one of the future emails, she might even be invited to become a recurring donor. Do you see the difference?
Prompt and thoughtful donation receipts are central to effective fundraising and good donor stewardship. Sending donor receipts soon and making sure they include the required information is the most important, whether you send out an annual summary letter or have a staff member send them out every Friday. However, when issuing donation receipts through an online donation software such as GiveForms, you gain access to a plethora of other nonprofit-specific benefits as well:
- A customizable donation page optimized for mobile
- Embeddable donation forms directly on your website
- Donor dashboard to help you search, view and export your donations
- Monthly recurring donations and social sharing options
- And more!
- IRS Publication 1771: Charitable Contributions: Substantiation and Disclosure Requirements
- All about quid pro quo contributions (National Council of Nonprofits)
- Thanking donors for non-cash gifts, such as in-kind-gifts/donated property (IRS)
- 6 IRS Requirements for Every Donor Receipt to Ensure a Charitable Deduction (Clark Nuber PS, 2013)
Note: We highly recommend that you read the IRS Publication 1771. There are many exceptions, and disclosures that might be relevant to your nonprofit organization. Furthermore, this article should not be construed as legal or tax advice. Before making any decision that may affect you or your nonprofit organization, consult a qualified tax or legal advisor.