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The Importance of 501c3 Donation Receipts

There are many reasons donors would choose to contribute to charity: supporting a cause that matters to them, leaving a positive legacy, following their philosophy on giving, etc. Sometimes, an important incentive that drives them to pick one nonprofit over another is the deductibility of their charitable contributions.

Generally, the rule is that only 501c3 tax-exempt organizations that are formed in the United States are eligible to receive tax-deductible charitable contributions. At the time of the contribution, the organization must be tax-exempt for a donor’s contribution to be considered deductible.

For this reason, your nonprofit needs to stay updated with IRS notifications. Not taking immediate action on any matters regarding your tax-exempt status could greatly affect your relationship with your donors.

Nobody likes taxes. Neither you nor your donors would ever want to pay taxes for doing something for the benefit of society. If you are not tax-exempt, then your donors might find that they would much rather donate to an organization where their contributions do not count as personal expenses on their financial statements. This could negatively impact your relationship with your donors as well as the retention rate.

Thus, with your tax-exempt status, you should make sure to provide your donors with a written acknowledgement for their donations – the 501c3 donation receipt – that will allow them to claim the tax deduction.

You could theoretically provide a receipt for every donation, but it is best to provide a single receipt recording all their donations once a year. This practice will make it easy for the donor because they won’t have to keep track of multiple single receipts, and when they are accounting and filing for tax returns, they can organize their records easily.

Each receipt must contain six items to meet the standards set by the IRS:

  • The name of the organization
  • The amount of cash contribution
  • A description of any non-cash contributions
  • A statement that says the organization provided no goods or services in return for the contribution if this was the case
  • An estimate of the value of goods or services if the organization provided any, in return for the contribution
  • A statement that any goods or services provided in return for the contribution by the organization consisted entirely of intangible religious benefits

Donor receipts should include the donor’s name as well, and sometimes they also include the charity’s address, although this is unnecessary. The donor, however, should have the charity’s address on their records.

The receipts should also include the dates of contribution. If the receipt does not include a date, the contribution may be declared invalid. Nonprofits should be particularly vigilant around the end of the year because sometimes checks mailed in December could arrive in January. The correct date should be reported on the receipt.

It’s easy to create 501c3 donation receipts. You can either make one manually using a template or get any donation software to do the work for you. What’s important is that your donors should receive the receipt to be able to get the deduction.

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