One of the many benefits of donating to charity is that both the donor and charity can benefit from the donation: the donor may receive a tax deduction for the donation while helping the not-for-profit organization fulfill its mission. However, donors can only claim a tax deduction for contributions of $250 or more if they obtain a contemporaneous, written acknowledgment from the charitable organization or church. Although it is not the not-for-profit’s responsibility to supply this acknowledgment, providing the documentation eases that burden from the donor and can result in a happy donor.
Components of Acknowledgements of Donations
The statement should contain certain information regarding the donation. Required items for inclusion are:
- Name of the charitable organization,
- Amount of the cash contribution,
- A statement that no goods or services were provided by the not-for-profit organization (if that is the case), and
- (Only if non-cash contributions are made) a description of the donated goods or services – but not the value of those goods or services.
This statement can be in a variety of forms – such as a letter, email, or postcard – and should be sent to the donor by January 31 of the year following receipt of the donation.
If the charitable organization provides goods or services in exchange for a contribution of $250 or more, then the acknowledgment must also provide a good faith estimate of the value of such goods or services since the donor is not allowed to deduct that portion of the contribution. Of course, like all rules, this one has exceptions.
Spotlight on Quid Pro Quo Contributions
Have you ever made a donation and received an item in return such as a ticket to an athletic event or five-course dinner? It is fairly common for people to donate money in exchange for goods or services, and it’s considered a quid pro quo contribution.
An organization receiving a quid pro quo contribution is required to furnish a written disclosure to donors informing them that the deductibility of the donation is limited to the excess of the donated amount over the value of the goods or services received by the donor. Additionally, the organization must disclose a good faith estimate of the fair market value of the received goods or services. Since organizations often receive discounts on these goods (or even receive them for free), charitable organizations should understand that the value of goods stated on the disclosure statement is the fair market value—not the actual cost of the goods or services.
For example, suppose a not-for-profit organization was given 50 tickets to a professional basketball game that would normally cost the public $60 each. You donate $100 to this organization and receive a ticket for the donation. The deductible amount of your donation is limited to $40 (i.e. $100 donation minus the $60 fair value of the ticket received). Again, as with most rules, there are exceptions, and there are certain times when a written disclosure statement is not required.
There are penalties for noncompliance, so not-for-profit organizations need to fully understand these requirements and the related exceptions. The penalty is $10 per contribution, not to exceed $5,000 per event.
Get Plugged in with CRI’s Nonprofit CPAs Regarding Required Disclosures Related to Donation Acknowledgements
Do you have questions about the required disclosures related to donation acknowledgments? Then get plugged in with CRI’s not-for-profit CPAs.