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The end of the year is an exciting and busy time for nonprofit organizations due to the year-end fundraising season. On top of any year-end campaigns, nonprofits also use this time to organize their annual financial reports and prepare for necessary federal and state tax filings.
However, your nonprofit’s staff aren’t the only ones navigating financial documents at the end of the year. Your donors may be going through a similar experience, gathering receipts and financial summaries in order to manage their own taxes and annual budgets. For some donors, part of getting their finances together involves reaching out to your nonprofit for their year-end donation receipts.
Year-end donation receipts help both donors and nonprofits maintain transparency and ensure everyone can complete their federal and state filings accurately.
Fortunately, year-end donation receipts don’t have to be complicated. You can clear up many concerns and misconceptions by asking a few common questions:
- What should be included in a donation receipt?
- When should your nonprofit send donation receipts?
- How should a nonprofit send donation receipts?
- Are there any exceptions or complications to donation receipts?
Maintaining donation receipt best practices throughout the year can reduce stress for both your staff and your donors. It also makes the reporting process easier and faster for everyone involved.
What should be included in a donation receipt?
Year-end donation receipts and regular donation receipts given out at other times of the year are slightly different documents, though they contain much of the same information. Specifically, your year-end donation receipt is an overall, formal acknowledgement of every donation given over the course of the year.
The Internal Revenue Service (IRS) has specific requirements for what must be present on a donation receipt for it to be considered an official receipt rather than an informal acknowledgement. However, there are some components you may want to add even if they are not legally required. For example, you don’t need to summarize every donation made in your year-end donation receipts to maintain legal compliance, but it’s still good practice so donors can track all of their individual donations.
To comply with legal requirements for fundraising, your official donation receipts must include:
- Your organization’s name.
- The donor’s name.
- The date the donation was received.
- The donation amount.
- Description of non-cash donations, if applicable.
- A statement that nothing was given in exchange for the donation or an estimate of the value of what was given in exchange, if applicable.
- For religious organizations, a statement that intangible religious benefits were provided.
Year-end donation receipts should also include the donor’s total contributions for that year. Including a summary of each donation made will help donors see how their total was calculated.
When should your nonprofit send donation receipts?
While year-end donation receipts should be distributed near the end of the year, it’s still good practice to provide receipts for every donation as a donor gives throughout the year. This will simplify the year-end receipt creation process as you’ll already have all of the donation records you need to include.
To maintain legal compliance, make sure your nonprofit sends out donation receipts in the following situations:
- The donor makes a single donation that is more than $250. All gifts of $250 or more legally require a receipt. However, to help keep everyone’s financial records organized, you should send receipts for every donation, no matter the size.
- The donation was $75 or more, and something was given in exchange for it. This stipulation can become a bit more complicated based on the value of the item or service given in exchange for the donation. For example, if a donor gives $100 and receives a keychain as a thank you, the keychain is likely not of high enough value to need a receipt. However, if the same donor had their travel expenses to visit your nonprofit’s headquarters paid by your organization, you would need to report it in the receipt.
While not legally required, you should also send a donation receipt if a donor specifically requests one.
Be sure to distribute these receipts in a timely manner so donors can file their tax returns on time. Many nonprofits send automatic receipts and confirmation emails after each donation to make sure all gifts are documented. This can be especially helpful for your recurring donors who make multiple gifts every year.
How should a nonprofit send donation receipts?
Donation receipts must be written down in some manner, whether in a letter or email, for the sake of accurate record keeping. Verbal confirmations do not count as donation receipts. When sending out your receipts, consider:
- Creating automatic messages: The best way to avoid missing a receipt is to use your fundraising software to automate the process.
- Using templates: Given that all nonprofits need to send donation receipts, there’s no need for your staff to create a template from scratch. Research resources online, and make sure they have all the necessary information fields for your organization.
- Combining them with your thank you messages: You should thank your donors and give receipts for every donation made. Instead of sending multiple emails for one donation, combine these two messages into one.
If you’re looking to combine these strategies, Bonterra Donor Engagement's Guided Fundraising solution (formerly Network for Good) allows you to send customizable thank-you messages following a donation. You’ll just need to tailor the messages to the donations you receive. For example, you might create two sets of message templates, one for donations where nothing was given in exchange and another where something was provided.
Are there any exceptions to donation receipts?
Year-end donation receipts are fairly straightforward, but complex situations can come up. In this case, conduct more research or consider contacting a legal consultant for advice on how to proceed. Keep an eye out for a few common situations:
- Auction proceeds: Donations given in exchange for prizes from live or silent auctions are often not tax deductible for donors. Guests who win auction items will need to receive a sales receipt, not a donation receipt for their prizes. Fortunately, these receipts contain much of the same information, such as the organization and donor names and a brief description of what was exchanged.
- Insubstantial goods and services: How an item or service is determined to be substantial or insubstantial depends primarily on the cost. Specifically, low-cost branded items given as gifts during a fundraising campaign that cost $9.10 or less will be considered insubstantial. However, this distinction can vary based on the situation.
- Intangible religious benefits: Religious organizations do not need to estimate the value of religious benefits or describe them in greater detail than “intangible religious benefits.” Not all services and goods given by these organizations count as intangible, however. For example, routine free church attendance would qualify as an intangible benefit, whereas having travel expenses for a mission trip paid would not.
As you start planning for the end of the year, consider seeking out a nonprofit legal consultant early in case you run into any gray areas or need a professional opinion due to one of these situations. Doing so will also help you compile your year-end donation receipts and get them to your donors faster than doing it alone.
At any time of the year, you can take proactive steps to ensure consistent receipt management that will benefit both donors and your organization. Find ways to optimize your current process for creating and sending donation receipts, such as finding the best templates or automating the process.
Dr. Stephen Urich is the CEO of Labyrinth, Inc., an organization that assists charitable organizations with all aspects of charity state registration and compliance. He is also a Certified Public Accountant and specializes in nonprofit accounting. He has been working in the nonprofit sector for 25 years.