Non-profit organizations receive donations from multiple and diverse donors to help with whichever cause the organization is pursuing. Therefore, it is imperative to record how many donations have been received and how much each donor has given. This can be done using a donation receipt, also known as a 501(c)(3) donation, which is proof that a donation has been received. A donation receipt is issued when the donation exceeds $250 in value. Donations can be personal property, cash, payment/deposit, or vehicle.
The receipt is an acknowledgment for the donor, declaring that the donation has been received while offering an appreciation message. Additionally, the receipt can be used to convey necessary information that the donor requires for tax purposes. Usually, the receipts will be sent by the end of the year when the donation was made or in January of the subsequent year. It is, however, recommended to issue the receipt as soon as the donation is received, typically within 48 hours. Donors have been known to donate again if they are acknowledged in time.
This article focuses on how a donation receipt works, its importance, and how to create one after receiving donations.
Why are Donation Receipts Necessary for the Organization?
The receipts are sent after the gift or donation has been received. There are many reasons why non-profit organizations should consider issuing donation receipts.
Below are the common reasons for preparing a donation receipt:
Accounting
If a receipt is drafted for every donation/gift received, the receipts can be helpful financial records. Since each receipt will show how much was offered and the source of the money, they can be reliable for accounting purposes.
Legal requirements
The IRS, in some cases, requires non-profit organizations to declare donations through donation receipts or be penalized. Organizations should thus send the IRS the receipts to fulfil this legal requirement. The penalty for failing to submit receipts for donations ordinarily results in $10 per donation. However, this penalty can go up to $5000 per reporting period.
Tracking donation history
Tracking the donation history of an organization is vital to be able to plan for better funding. Non-profit organizations usually have multiple donors. Some donors may have given before, and some may be new donors. The receipts help track these donors so that they can be reached if more donations are needed in the future or if acknowledgments need to be made for contributions.
What is a 501(c)(3) Non-Profit Donation Receipt?
A 501(c)(3) non-profit entity is a type of tax-exempt organization in the United States that qualifies and is approved by the IRS as a charitable organization.
Therefore, a 501(c)(3) non-profit donation receipt is issued to acknowledge a donation received by a non-profit organization. The receipt should mention the amount of money donated, the date of donation, and any other details that could be useful for the donor and organization. The donation is deductible only if it is given before the end of the tax year, and as a result, pledges and promises are not tax-deductible. So, donors can donate to 501(c)(3) non-profit and renowned charitable organizations and be confident that their donations will be tax-deductible.
501(c)(3) Receipt Requirements
As earlier stated, a donation receipt is a document that can be used in legal scenarios such as tax deductions by the donor and in declaring donations. As a result, it has to fulfil specific requirements.
They include:
No goods or services provided
Non-profit organizations shouldn’t issue a receipt if the donor received any goods or services in exchange for the donation. For example, if the donor received a gift, the money shouldn’t be considered a tax-deductible donation.
Less than $250
The non-profit organization should not issue a receipt for donations under $250. However, if a single donor makes multiple donations below $250 whose total exceeds $250 within the year, a receipt can be issued. This is a requirement (26 U.S. Code § 175(f)(8)(A)). Note they can claim tax deductions for the multiple donations without presenting the receipt from the non-organization. The non-profit organization is thus not required to issue a receipt in such cases.
More than $500
Organizations should issue donation receipts for donations valued at $500 and above. According to 26 U.S. Code § 175(f)(11)(B), such a donation should be thoroughly described.
More than $5,000
If a donation is made and valued at more than $5000, it is advisable to hire a professional appraiser to determine a more accurate valuation. This is a requirement of 26 U.S. Code § 175(f)(8)(C).
Goodwill Donation
Donors can donate personal property, such as clothing and household items. The donor can use a goodwill donation receipt to claim the associated tax deductions in such a case. The name stems from a decentralized community non-profit organization known as Goodwill. This is necessary only if the donated items will be claimed in the individual donor’s taxes. Next, the donor should calculate the value of the donations. The IRS expects donors to be trustworthy in valuing donations. It is thus vital to retain this trust by not overvaluing the items, as it can lead to drastic consequences during a tax audit.
Goodwill donations can be donated in two methods. This can be done through various donation bins in different locations throughout the states or at the Goodwill donation centre.
- To donate personal property to Goodwill, donors place the items in the donation bins provided by the organization. Each state has Goodwill stations; therefore, there is always a local Goodwill centre and bins where donors can drop their donations.
- Before donating personal property, it is best to research which items are accepted as donations and which hazardous items are rejected. This determination can be made by calling the local Goodwill centre. Everyday donated items are clothing, electronics, household items, and retail inventory.
- To ensure the item is correctly valued, donors can use the Donation Valuation Guide to determine the item’s “ballpark value.”
- To ascertain that the Goodwill entity is tax-exempt, use the IRS Tax Exemption Search to identify its EIN (tax identification number).
Donation Receipt Templates
A donation receipt can be prepared from a template. Our readers can download donation receipt templates from our site at no charge. The templates are professionally designed to ease preparing donation receipts for non-profit organizations. With the template, the user won’t have to worry about forgetting the necessary details to include in the receipt. Using a template, the user has to do is fill out the fields provided to create the donation receipt and send it to the donor. In addition, the templates are reusable and can be utilized for multiple donations instead of creating receipts from scratch.
How to Write?
Donation receipts should be written in such a manner to capture the details of the donation and maintain a certain level of professionalism. Below are steps to writing an influential 501(c)(3) donation receipt:
Organization’s information
The receipt should begin with information regarding the non-profit organization. This information can vary from case to case. However, the essential information to include in this section are:
- Name – The official and legal name of the organization must appear on the receipt. Remember, the organization must have 501 (c) (3) status, so it should be the name registered with the state and federal governments and the IRS.
- Federal tax ID number – Each charitable organization has an IRS-issued tax number. It must be indicated on the receipt. This tax number is unique to the specific organization and thus must be captured accurately.
- Mailing address – The organization’s mailing address must be included in the receipt. This helps anyone sending donations to get in touch with the organization.
- A statement that depicts that organization is 501(c)(3) registered – This section must state the details of the organization’s 501 (c) (3) status as a tax-exempt organization. This is a fundamental factor to be considered and ensures that the donor isn’t donating to an organization that is not eligible for donations.
Date of the donation
The date a donation is made is significant for tax purposes. Ensure only one date is written out, as this can complicate future accounting needs. The date must show the day, month, and year the donation was made.
Donor’s information
The donor has to be identified too. Therefore, the next section in the receipt is the donor information, including:
- Name – The donor’s name must be indicated in this section following standard grammar and punctuation capitalization rules. This must be their legal name because the receipt may have to be used for tax filing. If it is an entity, its official business name should be given.
- Physical address – In this section, the donor’s address must be written to include the street name, city, and state. This can be the home office for persons or office address for entities.
Donation information
The donation receipt should contain details about the donation made by the donor. This section should provide the following information:
- Donation amount – Indicate the exact donation amount. For specific dollar amounts (e.g., $1000), use commas to make the donation more readable and abbreviate the currency (e.g., USD).
- Description – Next, a description of the donation should be provided. The description can highlight the type of donation (e.g., clothes, cash, online donation, check, etc.), donation method, and other pertinent details. For example, if a TV is being donated, its brand, size, color, etc., can be indicated.
- If any good or services are exchanged – If a good or service is delivered in exchange for a donation, it must be declared in the receipt. The value of the good or service can also be indicated.
Representative signature
Since the receipt constitutes a legal document, it must be signed. Therefore, a representative of the organization should sign the receipt. Also, they should include the donor’s name, the title of their position in the organization (e.g., Director), their signature, and the date of signing. The representative acknowledges that the donation described in the donation receipt was received by signing.
Frequently Asked Questions
How do donation receipts work for donated vehicles?
Many non-profit organizations raise money by reselling or auctioning off donated vehicles. So, if a vehicle is donated and is estimated to have a value between $250-$500, the organization can issue a conventional donation receipt. The receipt should indicate the sale date and the sale’s profit. It should also state that the donor cannot claim tax deductions exceeding the specified profits. In some cases, organizations opt to retain the vehicle. Thus, the receipt should indicate the use of the vehicle and how long the organization intends to retain the vehicle.
What about donations of goods or services?
Organizations sometimes offer goods and services as tokens of appreciation for contributions. Such goods and services include property, cash, benefits, and privileges. The receipt should indicate an estimated value if the donor offers goods and services for contributions worth more than $250. This is because the donor may have to deduct the value of the goods and services from the value of their contribution when claiming tax deductions. However, this is unnecessary if the goods and services offered are insubstantial, such as membership or thank you cards.
When is an appraisal for a donated item needed?
Appraisals are required when the donation is valued at more than $5000. This is when the donation is any other thing other than monetary.