Charitable contributions are a main source of funding for most non-profits. In order for your donors to receive a tax deduction for making charitable contributions, they must be properly and appropriately acknowledged by the nonprofit. You may be surprised to learn that there are several important things your organization must do to ensure that donors make take a tax deduction.
As summarized in IRS Publication 1771 on Charitable Contributions – Substantiation and Disclosure Requirements, donors must have a bank record (i.e., a canceled check) or written communication from the charitable organization to claim an income tax deduction for a donation to a 501(c)(3) organization. While it is a best practice to provide written acknowledgments for all donations of any size, the donor must obtain a written acknowledgement from the charity for any single contribution of $250 or more, or for “quid pro quo” contributions, where a donor receives goods or services in exchange for a payment of $75 or more. This means that most donors will expect your organization to provide them with a donation “receipt.”
Content of the Acknowledgement
The charity’s written acknowledgment should contain the following elements:
- Name of the charitable organization;
- The date of the contribution;
- The amount of cash the donor contributed, or in the case of property other than cash, a description of the property contributed (but not the value—the donor must place the value on all non-cash donations);
- A statement that no goods or services were provided in exchange for the contribution OR if there were goods exchanged, a description of the good and/or services exchanged accompanied by the estimated value; and
- A statement that the organization is recognized as tax-exempt and its charitable status (i.e., public charity, private foundation).
The acknowledgment might read something along the lines of: “On behalf of [organization], we would like to thank you for the generous donation of $1,000 that was received on August 1, 2021. No goods or services were provided in exchange for your generous contribution.”
Establishing an Acknowledgement Process
Every charitable organization should have a written process for receiving donations and issuing donation acknowledgments. In addition to the legal requirements, that process should consider the message you wish to convey. Obviously, an acknowledgment letter should thank the donor for their charitable contribution. However, a written acknowledgment also provides an opportunity to inform the donor about how their contribution is being used or to provide an update on the direction of the non-profit. Ideally, these letters can be the first step towards fostering a long-term relationship between the organization and the donor.
One aspect of the process is the timing of each acknowledgement. Legally, the acknowledgement must be received by the donor before the donor files their tax return or prior to the donor’s tax filing deadline (including extensions), whichever is earlier. However, it is best to get in the practice of sending acknowledgments 2-3 days after a charitable donation has been made. While written letters signed by hand are the most personal, not every organization has the time to do this, especially if larger non-profits. Email acknowledgments are also acceptable.
Acknowledgments should be tailored according to the size of the donation, the donor’s relationship with the organization (i.e., if they are first-time donors or long-time donors), and the reason for the donation (if this is known). Ideally the letter should be personalized enough so the recipient does not feel they are simply receiving a standardized form letter.
Making the time to say “thank you” must be a part of the regular processes of any non-profit organization. For more detailed advice on how your company can establish an acknowledgment process or on how to improve your existing acknowledgment process, please contact us. We have decades of real-world business experience as well as legal expertise to help your non-profit succeed. The Law Firm for Non-Profits – helping good people do good things. Visit our website at www.lfnp.com for more information or call us at (818) 623-9898.