Maintaining Goodwill with Your Donors by Documenting Their Gifts (part 1 of 4)
We recently offered a posting about how to gain a legitimate tax deduction for charitable gifts. Let’s now talk about the responsibility that a charity has to its donors to support those deductions.
Be aware that donors want to maximize their charitable deductions. You can facilitate the process as a part of your charitable mission in soliciting gifts, and your donors appreciate your doing so. It’s the donor’s responsibility to collect the documentation, but charities eager to show their appreciation and encourage future donations won’t wait to be asked.
You may decide to receipt on every occasion with a thank you letter, but an annual statement will suffice. Be sure to include the name and address of your organization on the acknowledgement and keep copies of these statements for yourself generally for three tax years (in case a donor should misplace the receipt you sent).
The timing of charitable donations is important to consider at the end of the year. If a transaction is processed online or a check is postmarked before midnight on December 31, that gift is deductible in the current year, even if not received by the charity until the next year. Pledged amounts or good intentions of mailing a check dated in the tax year aren’t sufficient.
All of the above rules include the requirement that the receipt be contemporaneous. The IRS defines that term as the earlier of the date on which the donor actually files his or her individual federal income tax return for the year of the contribution or the due date (including extensions) of the return. Help your donors avoid disallowance of their gifts and possible negligence penalties by providing receipts before they need them for an IRS audit.
A good overview of this topic can be found in IRS Publication 1771.
As a charitable organization, you’ve been granted an important exemption from income taxes and have the privilege of receiving these gifts. That designation carries the fiduciary responsibility to follow the law in how you document them. Charitable organizations must keep a careful accounting of each contribution, including the donor’s name, address, the amount and form of the gift, and the value of anything given in exchange for that gift.
The three main types of gifts you may receive include cash (checks and credit card payments fall into this category), non-cash items, and in-kind gifts.
Check back in the coming weeks for more rules specific to the type of charitable gift. If you have any questions regarding this topic, contact us by calling (904) 398-4747 or emailing lynn@onlinestewardship.com.
