A 501(c)(3) Donation Receipt is a written document stating or acknowledging that a donation has been made and received from one party to another party (an individual or an entity/non-profit organization).
A donation can be in the form of cash or property. A donation receipt can be in the form of a letter, card, or email. A donation receipt is of great significance if the donor wants to receive a tax deduction when filing their tax returns. Pledges can also be verified through a receipt for tax deductions of a fiscal year, even if the pledge won’t be given in that same year.
501(c)(3) Donation Receipt
A 501(c)(3) donation receipt is given by organizations that can be categorized into the following:
- Public charity: Such as churches, educational organizations, animal welfare agencies, etc. which have active programs
- Private foundations: Such as a family foundation which generally don’t have active programs, are not publicly supported/funded
- Private operating foundations
A 501(c)(3) status is obtained from a thorough examination of the non-profit organization’s governance, structure, and programs. The IRS must acknowledge the organization as a 501(c)(3) organization for tax-deductions to be made. Donations given to a 501(c)(3) non-profit are tax-deductible from the donor’s annual tax returns, provided the donation was given before the end of the tax year.
The IRS requires a donation receipt if the donation made is more than $250 regardless of whether the donation was in cash, bank transfer, or credit card. The 501(c)(3) donation receipt is customarily sufficient proof of a donor’s eligibility to the IRS.
Donations less than $250 do not need a 501(c)(3) donation receipt to be deducted in tax filings. However, unreimbursed expenses such as transportation costs incurred by the donor on behalf of the charity are considered donations, and donors are permitted to request 501(c)(3) donation receipts for the same if they exceed $250.
Importance of it
The primary importance of having a 501(c)(3) donation receipt is that the donor can have documentation as proof for the IRS that a donation was made. This way, donors can be compliant with the IRS regulations of eligibility of donors for tax donations made within a specified tax year.
In some instances, these deductions could be up to 50% of the donor’s adjusted gross income (AGI). A 501(c)(3) donation receipt is also a confirmation that donations made have been made and can be used for financial record keeping.
The IRS has set forth some requirements that a 501(c)(3) donation receipt must meet to be valid. Among these requirements are essential details such as the name of the organization/charity and benefactor/donor, date, and amount of contribution that should appear in it.
Other requirements of a 501(c)(3) donation receipt are discussed below in this article;
250$ dollar contribution
The rule of $250 is applicable for a single donation. This rule implies that a donor can make several donations below $250 and qualify for donation tax deductions without the need for presenting a donation receipt – this is per 26 U.S. Code § 175(f)(8)(A).
Good or service provision requirement
The receipt should show if it were a monetary or non-monetary donation for instance personal property such as furniture, clothing, art, equipment, etc. In addition, the IRS expects the receipt to indicate whether there were commodities/goods or services awarded in exchange for the donation or not.
- B1: an appraisal of item requirement (IRS Form 8283 – Section A) – A description of any non-cash contributions should be given in the 501(c)(3) donation receipt. This way, a professional appraisal can be done to determine the value of the contribution.
It is to be noted that an appraisal is needed if the goods and services are believed to be over $5000; donations less than that can be assigned a good faith estimated value. The appraisal is expected to be completed within 60 days after the donation is made. Once appraised and a fair market value has arrived, the donor can deduct this contribution from their tax amounts. If goods or services were obtained in exchange for the donation and an appraised value is determined, the donor is obligated to deduct this value from their donation deduction. Goods and services include property, benefits, or privileges.
- B2: in case of a vehicle; for donors (View IRS Publication 4303) – Schedule A of IRS Form 1040 – The IRS also stipulates that vehicles donated and valued over $500, the donor is entitled to a written receipt for the vehicle donation. This way, the donor can include the donation as a deductible at the end of the tax year. Remember that the charity can decide to use the vehicle, or as a donor, one can sell the vehicle and donate the money. If the vehicle was valued at more than $500, the donor can only deduct the charity’s amount.
All assets permanently gifted or awarded for charitable purposes to an organization must cease operations as they are considered charity property and should serve non-profit objectives.
Note: Since, often, to donate, donors will be hosted at a charity dinner, the fee charged for attendance should not be used for contribution tax-deduction purposes. However, if additional cash payments are made during the dinner, the amount can be deducted when filing taxes.
Where the donor/benefactor did not receive goods or services in return, the 501(c)(3) donation receipt should have a statement that declares, “The organization provided no goods or services.” Also, donors who have an annual membership to a charity organization do not need a 501(c)(3) donation receipt if donations made annually are less than $75 or the donation is less than the value of any services or goods provided by the non-profit organization.
In case of $500 donation ((26 U.S. Code § 175(f)(11)(B))
The IRS under (26 U.S. Code § 175(f)(11)(B)) requires that the donation receipt presented to them should contain a fully detailed description of donations valued more than 500$. Therefore, in the case of a vehicle valued at $500 or more, it is up to the donor to cross-check if the following information was included in the vehicle contribution receipt; donor’s name, organization’s tax ID number, the 17-character VIN (vehicle identification number), vehicle’s odometer reading, vehicle’s description (year, model, make, color and body type) and date of contribution. In addition, if the vehicle was sold, the gross amount received from the sale.
If the donation is exceeding $5000 ((26 U.S. Code § 175(f)(8)(C)).
Note: Donation receipts can be of the following types: charitable donation receipts, In-Kind Donation Receipt, Cash Donation Receipt, Silent Auction Receipt, or End-of-Year Donation Receipts.
In some cases, donors might be donating to a charity straight from their paycheck.
To prove their eligibility for contributions deductions, one may use specific documentation as proof of their donation. It includes a pay stub, W-2 form, wage, tax statement, or any other documentation indicating the amount withheld by the employer. Alternatively, one can use a pledge card that declares the donor did not receive any goods or services in exchange for the withheld amount can be used.
Note: It is imperative to note that not all donations one makes qualify for deductions; tax laws have imposed requirements that are designed to ensure that the donation serves a charitable purpose. Hence the reason why the organization must qualify for tax-exempt status as required by the IRS. In addition, the donation must not be benefiting any private individual such as directors, management, or officer of the organizations, either directly or indirectly.
Donors are always advised to verify if the charity they wish to donate has a 501(c)(3) status before making donations if they intend to make a tax-deductible contribution. How does one undertake this verification?
Below are various organizations that qualify and don’t qualify as 501(c)(3) organizations under IRS regulations;
What qualifies as charity and what does not
For a donation to qualify for tax-exempt, the 501(c)(3) organization must be non-profit and must exist for one or more exclusively charitable objectives. Verification can be done in two ways; downloading the publication list 78 or using online platforms/websites to verify if the charity is 501(c)(3) certified. Charities that qualify as 501(c)(3) organizations will commonly be serving the following charitable purposes:
- General charitable (non-profit) organizations such as Red Cross, Goodwill, or United Way
- Veteran’s groups
- Scientific institutions such as medical facilities or research institutions
- Non-profit Educational organizations
- Government branches that serve the public
- Religious organizations such as temples, churches, mosques, churches, etc
- Protection or preservation of animals and children
On the other hand, some organizations do not qualify as 501(c)(3) organizations, including civic or local groups, labor unions, political parties, sports clubs, and other individuals.
Donors can choose the 501(c)(3) donation receipt template that fits best their needs. The basic components of the 501(c)(3) donation receipt template are the name of the recipient, a statement that identifies the recipient as tax-exempt, name of the donor, date of donation, amount donated, and a statement that declares the donor did not receive any substantial or insubstantial goods or services in return. Using a (501)(c)(3) donation receipt template helps the donor captures all the relevant information for the donor’s tax returns.
Here are some free 501(c)(3) donation receipt templates for you to download and use;
- A donation receipt has multiple purposes, the primary purpose being an IRS requirement for donors who want to file for tax deductions after donation.
- Donating to 501(c)(3) organizations qualifies a donor for contribution deductions under IRS rules.
- Contribution deductions are ordinarily applicable for the tax year in which the donation was made.
- Donations do not have to be necessarily in the form of money for a donor to qualify for contribution deductions. For example, non-monetary donations such as personal property like clothing and furniture are also viable donations.
- 501(c)(3) donation receipts are must for donations exceeding $250 if a donor is eligible for tax deductions.
- If the gifted charity does not have 501(c)(3) status, donations made in such cases do not qualify as deductibles hence the receipt does not qualify as a 501(c)(3) donation receipt either. Consequently, all tax law requirements must be fulfilled before any deductions are made.