An electronic publication of Pfau Englund Nonprofit Law, P.C.
Disclaimer: This publication is designed to provide accurate information in regard to the subject matter covered. However, it is not intended to provide legal or other professional advice. If legal advice is required, the services of a competent professional should be sought.
Gift Receipts: What You Should Give Your Donors
Providing donors with proper receipts is not only good practice but frequently required to enable donors to deduct the contributions on their income tax filings. While written receipts are required for gifts of $75 or more, it’s a good idea to provide a receipt or acknowledgment for all donations. Receipts should include:
- the name of the organization to which the donation was made and its tax-exempt status (i.e. “a 501(c)(3) charitable and educational organization”);
- the date the donation is made;
- the amount of the donation; and
- a statement regarding whether anything of value was received in return for the contribution.
If your group receives non-cash gifts the donor should be asked to value the gift. Donors should be cautioned that gifts of used clothing, furniture and the like should be valued at the price the used item can be sold for, not the original purchase price. If the non-cash gift is worth more than $5000 the IRS requires a qualified written appraisal. Frequently appraisals are recommended for non-cash gifts valued at $1000 or more. Penalties starting at 20% of the amount of underpaid taxes may apply if donations are overvalued.
Volunteers and others may deduct expenses they incur to aid an organization. To deduct car expenses written records of the mileage driven for charitable purposes must be kept, along with the date driven and the name of the nonprofit group for which the driving was conducted. If the donor opts to use actual auto expenses instead of the standard mileage deduction the operating expenses must also be recorded. For other out-of-pocket expenses records to prove the amounts donated should be kept. In all cases, an acknowledgement from the nonprofit group that describes the services provided, the value of the expenses donated and whether anything of value was received in return for the donation should be provided.
What you can’t deduct
The IRS does not allow individuals to take charitable deductions for the value of their time or services. In addition, you can not deduct childcare expenses incurred to enable you to volunteer your time. Finally, individuals generally can not deduct contributions to nonqualified (i.e., non-tax-exempt) organizations or contributions made directly to individuals.
Nonprofit groups should keep records of all donors and donations received. Generally only the names and addresses of only the largest donors must be included on a group’s annual information return (i.e., IRS Form 990). Groups often find that smaller donors become larger donors over time. Therefore, investing in a good software package to track all donations is frequently a good idea.