The end of the year can sometimes be a chaotic time for nonprofits due to the year-end fundraising season. In addition, nonprofits should also use the end of a year to organize their financial reports to analyze the past year’s revenue and expenses and prepare for necessary federal and state filings.
However, your nonprofit’s staff aren’t the only ones going through financial documents this time of year. Your donors may be going through a similar experience, gathering receipts and financial summaries in order to manage their own taxes and annual budget concerns. For some donors, part of getting their finances together will involve 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, while year-end donation receipts can seem complicated on the surface—and there are some specific nuance and complications that can occur—for the most part, many concerns and misconceptions can be cleared up 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?
As the name implies, year-end donation receipts are an end of the year concern. However, maintaining good donation receipt practices all year round can reduce stress for both your staff and your donors. By keeping up with your donation receipts long before the end of the year, you can make the reporting process easier and faster for everyone involved. Let’s get started.
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 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 as donors will be able to track all of their individual donations.
Labyrinth’s guide to fundraising legal requirements provides a list of what must be included in your official donation receipts:
- 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, depending on which situation applies
- Religious organizations must add a statement that intangible religious benefits were provided
Year-end donation receipts should also include the donor’s total contributions. As mentioned, your year-end donation receipts can also include a summary of each donation made, so donors can 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 donation receipts for every donation anyway. 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 will need a receipt. However, to help keep your nonprofit’s and donor’s financial records straight, even small donations should likely receive a receipt.
- 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 card and a keychain as a thank you, the keychain is likely of negligible value, and a receipt would not be necessary. However, if that same donor instead had their travel expenses to come visit your nonprofit’s headquarters paid by your organization, you would need to report it in the receipt.
- The donor requests a donation receipt. While your nonprofit does need to send out year-end donation receipts to help your donors file their tax returns, you aren’t required to send out donation receipts for donations that don’t fall under the previous two bullet points unless specifically requested. Even then, your nonprofit does not legally have to, but ignoring your donor’s requests may hurt your chances of having them donate again.
Be sure to distribute these receipts in a timely manner so donors can accurately file their tax returns on time. Many nonprofits use 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.
Additionally, when creating your year-end donation receipts, which are essentially a summary of all of your previous donation receipts, you’ll already have all of the donation records.
How should a nonprofit send donation receipts?
Donation receipts must be written down in some manner, whether it is 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 donation receipt is to make the process automatic. Use your donation processor and messaging tools to create receipts automatically for each donation.
- Using templates. Given that all nonprofits need to send donation receipts, there’s no need for your nonprofit’s staff to create a new donation receipt template from scratch. Research resources online, and make sure they have all the necessary information fields based on your organization. For example, religious nonprofits will need to double check for a statement confirming that religious benefits were given.
- Combining them with your thank you messages. You should thank your donors for every gift contributed, and you should give receipts for every donation made. Instead of flooding your donors with multiple emails for one donation, you can combine these two messages into one.
If you’re looking to combine these strategies, resources like Fundraising Letters’ donor thank you templates can be a good place to start. With these resources, you’ll just need to slightly adjust your templates based on the specifics of the donation. For example, you might create two sets of templates, one for donations where nothing was given in exchange and another where something was provided, so you can meet that donation receipt requirement.
Are there any exceptions or complications to donation receipts?
As the previous points demonstrate, year-end donation receipts are ultimately fairly straightforward. However, complex situations can come up, which may require conducting more research or consulting a legal consultant for advice on how to proceed. For instance, here are a few common complications:
- Auction proceeds. Donations given in exchange for prizes from live and silent auctions are often not tax deductible for your donors. Your guests who win auctions 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 name and a brief description of what was exchanged.
- Insubstantial goods and services. As mentioned, your nonprofit will need to send donation receipts for donations of $75 or more when substantial goods and services are given in exchange for the donation. How something is determined to be substantial or insubstantial depends primarily on the cost of the item or service. Specifically, low-cost branded items given as gifts during a fundraising campaign that cost $9.10 or less will be considered unsubstantial. However, this distinction can vary based on the situation’s specifics.
- 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.” However, not all services and goods given by these organizations count as intangible. For example, routine free church attendance would qualify as an intangible benefit, whereas having travel expenses for a mission 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 to determine if something counts as unrelated business income, insubstantial, or tax deductible. Doing so will help you compile your year-end donation recents and get them to your donors faster than doing it alone.
Donation receipts play a key role in helping nonprofits maintain transparency, while also helping both nonprofits and donors keep their finances organized, especially during the busy year-end season. Many aspects of donation receipts are relatively straightforward, though there are some complications that may arise. In these cases, consider using a nonprofit legal consulting service to correctly document your donation receipts to maintain legal compliance and goodwill with donors.
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.