People make donations to support a worthy cause and uplifting those who need help. However, donors also want some evidence that assures them that those who they have entrusted with their donation are legitimate and trustworthy. Charity donation receipts are proof that donors have made contributions to a nonprofit organization. Often, these letters or emails get sent to donors after a contribution has been made. Often, nonprofits send out receipts at the end of the year during which the donation was made, or in January the next year. However, it is best to send out receipts as soon as possible.
Why are they important?
Charity donation receipts are important for multiple reasons. Donors need them to fulfill the legal requirement of filing tax returns. If your nonprofit is 501c3 certified, then donors will be able to get tax deductions on the charitable donations they make to your organization. However, they will have to provide proof of their donation, which they can only do if a receipt has been provided by the nonprofit.
Although tax returns are usually the main reason donors prefer getting a receipt, these also provide a form of confirmation for donors who may want to know that their donation has gotten through – especially if they are doing so online – and for their financial records.
For nonprofits, the IRS requires donation receipts under certain circumstances. By failing to send a receipt, a nonprofit can incur a penalty of $10 for each contribution and can go up to $5,000 for each specific campaign.
Donation receipts also help nonprofits keep track of their donation history, which they can use for future campaigns by extracting data from these receipts and identifying key donors, to retain them or to send out acknowledgment letters. These receipts are also important for reporting in accounting and essential for clear and accurate financial records.
Receipts are necessary for meeting IRS requirements in the case where a single contribution of $250 or more is made, or if a donor gives goods or services that are the equivalent of a single payment that would otherwise be over $75.
The exceptions to this requirement are in the cases of tokens, where nonprofits provide the donor with insubstantial goods or services in return for their donations. The organization may give promotional items to donors, but these should be low-cost articles under the price of $10.60.
The other exception is made for memberships. The IRS does not require nonprofits to provide receipts for the goods and services provided to donors who have annual memberships. However, these goods and services should be given for memberships under the cost of $75 and consist of privileges or services that remain active throughout the year.
Although the IRS does not have a specific format for donation receipts, they should ideally contain information such as the donor and the organization’s name, the date and amount of donation, a statement whether the donation was provided in return for any goods and services, and the signature of an authorized representative. They should also mention that the organization is a registered 501c3.