Demystifying Donation Receipt Requirements

By Matt Bitzegaio on September 24, 2019

Often there are three letters that can send any nonprofit into a tailspin: IRS.

Over the years, we’ve witnessed a lot of confusion as to what is required from a 501c3 charity, especially as it relates to sending out receipts for donations to respective donors.

We’re going to take a look at the IRS rules and determine what you MUST do versus what you SHOULD do, realizing those two things are not necessarily the same.

Before we dive in, our attorney tells us we need to let you know we are NOT a tax accounting company, and this input shouldn’t be used to make tax-related decisions. Please consult a tax professional for official advice and guidance on any topics relating to the IRS.

Now that that’s out of the way, we can get to the nuts and bolts of the topic at hand.

First, let’s a take a look at what the IRS says about receipts. In their publication, “Charitable Contributions”, the IRS states:

  • Donors must have a bank record or written communication from a charity for any monetary contribution before the donors can claim a charitable contribution on their federal income tax returns;
  • Donors are responsible for obtaining a written acknowledgment from a charity for any single contribution of $250 or more before the donors can claim a charitable contribution on their federal income tax returns;
  • Charitable organizations are required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.

The IRS further states the donor can use a bank record, such as a canceled check or a letter or receipt from the organization to qualify for a tax deduction for their donation. That receipt or letter must include the name of the charity, the date of the donation, and the amount of the donation to be claimed.

For contributions over $250, the donor must obtain a timely, written acknowledgment from the recipient organization. Here is where things get a bit interesting and pretty confusing for nonprofits: it is incumbent on the donor to obtain this receipt and the charity will incur no penalty from the IRS for not providing an acknowledgment.

We have heard several fundraising professionals state it is an IRS requirement for the charity to provide that receipt for all donations over $250. While this is technically an untrue statement, it doesn’t mean we as an organization should leave it up to the donor to request a receipt.

Now that we know what we are required to provide, let’s dig into how we should handle donation receipts.

First, we should provide a receipt for all donations. Why waste a chance to engage with a donor in such a useful way? They have proven they are interested in your organization, so let’s make it easy on them to support your cause!

With this in mind, here is a list of what should be standard inclusions in donor receipts:

  1. Name of your organization
  2. Amount of donation
  3. Description (but not value) of an in-kind donation
  4. A statement that no goods or services were provided by your organization in return for the contribution if that was the case.
  5. Description and good-faith estimate of the value of goods or services, if any, that an organization provided in return for the donation.

We also believe a personalized note, preferably handwritten, can go a long way in meaningfully thanking your donors.

This is also a tremendous opportunity to engage with donors at the end of the year. Combine the annual summary with an announcement of what your organization accomplished with their support, or let them know about exciting events, programs, or opportunities you have coming up.

To sum up how to stay in good graces with both your donors AND the IRS:

  1. Legally, it is up to a donor to request a receipt from you; not your legal responsibility to provide one.
  2. That said, it only benefits your organization to send a receipt and a thank you to each donor in as timely a fashion as you are able.
  3. Sending a donor an annual statement is also a great idea and another opportunity to positively engage them in your organization.

Hopefully, this helps makes sense of your requirements as a 501c3 charity and provides you an opportunity to build increasingly positive engagement with a simple receipting process.

Pro Tip:

If your donor software is capable of it, batch up your donations into weekly batches and do your receipt/thank you letters on a single day of the week. This will be more efficient than doing them one at a time as they come in.

Better yet, take advantage of services like Thanks.io and automate some of the receipt/thank you process. This can be a game-changer as it will save a lot of time while still providing a personalized thank you/receipt!