One of the best ways for churches and ministries to express their gratitude toward members' faithful giving is by providing donors with donation receipts. Receipts serve as a way for your organization to maintain accuracy in recording contributions.
They also ease the burden of proof that falls on donors when applying for a tax deduction.
With the new year right around the corner, the deadlines for receiving year-end donations and sending out receipts for 2020 are coming soon. In today's blog, we will talk about how you can prepare now to avoid any last-minute stress.
Year-End Giving Deadline
As the year comes to a close, the opportunity for your church or ministry to be able to receive tax deductible donations for the year is also ending. That's why it's important for you to let your church members and supporters know that now is the time for them to take advantage of the tax deductions for giving. Whether you print it in a church bulletin, announce it from the pulpit or publish it on your website, you should remind your donors to be aware of two things:
Any member wanting to make a large contribution, desiring to get tax-deductible credit for this tax year, must give it to the church on or before midnight of December 31st or mail it to the church so that it is postmarked on or before December 31st. Also, remind your members that in order for their tithes and offerings to be tax-deductible, they must have possession of their giving statement from the church.
Additionally, members must have in their hands a written receipt including all individual contributions of $250 or more if they want them to be tax-deductible.
In our Ultimate Year-End Checklist, we provide you with everything you need to make sure your organization is in order to end 2020 strong. To get your free download, click here or give us a call at (844) 409-1342.
The Burden of Proof
Once you have received your donations for the year, you will want to focus on sending out giving receipts. Many churches and ministries start to feel anxious when it comes to meeting the requirements for donation receipts. What does the IRS expect from your organization regarding donations, and how should gifts be recorded and acknowledged?
The first thing to know is that the burden of proof falls on the donor.
The giver must provide documentation for charitable giving to the IRS, which is generally given by the organization.
This can be done in one of two ways:
— Through bank records (check copies or bank/credit card statements).
— With a written statement from the organization that received their donation.
While there is no obligation for churches to send out donation receipts to their congregation's members and donors, it is considered common courtesy and an act of gratitude to send these receipts to those who have provided donations to your organization.
Many organizations are moving to donation tracking software to record these items. Most donation tracking software can even generate giving receipts. StartCHURCH offers the Kingdom Steward software, which allows you to print or email these statements directly to your donors, so they receive them promptly with less frustration on your part.
As with anything, there are exceptional circumstances that surround certain types of donations. These include:
— Noncash donations.
— Quid pro quo situations.
— Credit card processes.
These types of donations must be handled differently to provide the church with a proper record of receipt and provide the donor with a contribution receipt acceptable to the IRS for their tax deduction. Let's review these rules separately to get a better understanding.
Churches and ministries receive donations of items and property all the time. Vehicles, equipment, instruments, buildings—you name it. But how do you correctly record the receipt of these donations for the individual that has given them?
The first thing to remember is that the organization cannot determine what the item or property is worth. The donor's tax preparer will be the one to take on this responsibility. A contemporaneous written acknowledgment must be given, detailing the condition of the item. The donor will take the written acknowledgment to their tax preparer to itemize the deduction on their tax return.
For items that are estimated to be worth more than $500 at the time of donation, Form 8283 must be filed with the IRS by the donor. You must also file Form 8283 if you have a group of similar items for which a total deduction of over $500 is claimed. Keep in mind that a contemporaneous written acknowledgment should still be issued to the donor.
Quid Pro Quo
This rule refers to donations to your organization in which the donor received something in return. As an example, if you were to sell coffee mugs at your church's service for $10, and a member purchased one and gave a donation for a total of $40, their donation only counts for $30 since the item was bought for $10. The total amount that was given less the value of the item or service that was received in return will be counted as a tax-deductible donation.
When the donor gives a total of $75 or more and receives a service or item in return, a separate receipt must be given detailing a good faith estimate of the value of services or goods received.
Keep in mind that it's recommended to include the following statement on your giving receipt: "no goods were provided except for intangible religious services," or in the case of quid pro quo that "other than those listed, no goods or services were provided except for intangible religious services."
Credit Card Processing
More and more organizations are moving to credit card processing companies to take donations on their behalf. It is essential to keep in mind that the whole amount of their contribution is taken into account, but the processing fees are the organization's responsibility. It's also important to note that the date that the donation finishes processing is when the organization will receive it. This factor determines what year the gift will be tax-deductible.
If the donation is given on December 30th, but it doesn't process until January 2nd, then the donation will be considered for the following year by the IRS. However, anything that processes by midnight on December 31st will be viewed as a donation that year.
Give over the end-of-year anxiety
While giving receipts are generally overlooked for most of the year, leaving this task until the last minute can cause problems. However, by getting your finances in order today, you can get prepared in a few easy steps.
To help you prepare to enter 2021 financially strong, join us for our upcoming bookkeeping webinar. In this exclusive webinar, we will give you the tools you need to recover from the challenges 2020 brought and see your church or ministry financially thrive in the new year. To sign up for an upcoming date or learn more, click here!
At StartCHURCH, our ministry-minded bookkeepers specialize in managing the books for churches, ministries and other nonprofits, providing expertise for pastors and ministry leaders to rely on for situations such as these. We want to help take away the worry you may experience at this time of year and replace it with confidence that you are properly handling gifts and donations. If you have any questions about adequately handling donations, our donation tracking software or the StartCHURCH Bookkeeping Service, please call our specialists at (844) 409-1342. Or click the button below to schedule a time for a specialist to call you at your convenience.
For the original article, visit startchurch.com.
Kristen Calilcott is a bookkeeper at StartCHURCH. She compiles financial reports for pastors, and in turn, helps them make wise decisions for their organizations. Kristen loves knowing that she has helped ministry leaders spread their missions everywhere by keeping them informed of their financial situations.
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