Federal Requirements for Tax-Deductible Contributions
This article provides a quick overview of the basis information generally needed by schools when they make tax-deductible receipts for their donors. If more in-depth information is needed, be sure to contact a tax professional, such as a certified public accountant, or the Internal Revenue Service (IRS). For questions regarding tax-exempt organizations and contributions or for forms, call the IRS at 877.829.5500 or go to their website at www.irs.gov.
Contribution receipts. Under a new law passed in late 2006, all charitable donations of cash must be substantiated with either a bank record or written communication from the donee, regardless of the amount of the donation. Previously, contributions of less than $250 did not require a receipt or other specific documentation to be claimed as a tax deduction, though it was good practice. Contributions by personal check or credit card can be substantiated by the bank record. However, a $20 bill in the offering plate will not be deductible unless the church (or school) issues a receipt. And it won’t be able to do that without a system (such as envelopes) for connecting that $20 bill to an individual. These requirements, which began January 1, 2007, will primarily affect churches.
A person’s cancelled donation check is acceptable to the IRS as a receipt if the check is for an amount under $250. However, most ministries will still provide the donor a receipt for these smaller checks within days of each donation or perhaps on a consolidated statement sent out periodically such as quarterly or annually.
Ministries must provide donors a receipt if the amount of the donation is $250 or more, or contributions of $75 or more if the donor received any benefit such as a service or premium. For contributions over these amounts, a cancelled personal check is no longer sufficient to guarantee a tax deduction under IRS regulations.
The receipt may be provided at the time of the gift or in the form of a periodic report summarizing gifts during the reporting period. Donors must have a qualifying receipt by filing date of their tax return in order to receive a contribution deduction.
A qualifying receipt contains these elements:
a. Name of the organization.
b. Name of the donor.
c. The amount of cash received, or a description of the property donated. [Note: the value of the property should not be listed on the receipt.]
d. A description and valuation of any property or service provided to the donor by the organization, or a statement that no property or services were provided.
e. If only intangible religious benefit was provided to the donor, a statement that only intangible religious benefit was provided. Here is a sample statement:
ABC Christian School has not provided any goods or services in consideration of your contribution. Therefore, your entire contribution may be deductible as a charitable contribution for federal income tax purposes.
Please note that no tax-deductible contribution receipts are available for people’s donated time or services to their church or school. This includes the value of income lost while they work as an unpaid volunteer.
Frequently ministries receive donations at the end of the calendar year. To avoid confusion, consider putting the following short statement in your December monthly statements and in your church/school bulletins or newsletters.
Year-End Information for Contributors
As we approach the end of the year, we would like to remind you of several important tax regulations that could affect the amount of income tax you pay.
Cash contributions to the school and other qualified charitable organizations of up to 50 percent of your adjusted gross income are deductible on your tax return if your contribution check is written, dated, and postmarked on or before December 31. All three criteria must be met in order for us to issue a receipt. We will hold our books open until January 15 so that we can issue receipts for contributions postmarked on or before December 31.
Any donation to a charitable organization in the amount of $250 or more must have a written acknowledgment from the organization. This means that your cancelled check will no longer be adequate substantiation for larger contributions. Therefore, it is important that you save your tax-deductible receipts if you plan to itemize your deductions.
Thank you for your faithful interest in this ministry.
Disclosure rules for quid pro quo contributions. A contribution made by a donor in exchange for goods or services from the ministry is known as a quid pro quo contribution. In this situation, a donor may take a contribution deduction only to the extent that the contribution exceeds the fair market value of the goods and services the donor receives in return for the contribution, unless the goods or services are of “insubstantial value.”
Insubstantial value is defined as having a fair market value of not more than 2 percent of the amount of the donation (up to a maximum of $86). A school can disregard low-cost premiums (gifts to donors) if (1) the contribution is at least $43, (2) the organization’s cost for the item is not more than $8.60, and (3) the items are tokens bearing the school’s name and logo. These figures were for 2006 and are adjusted annually for inflation.
You must provide a written statement to a donor who makes a payment exceeding $75 that is partly a contribution and partly a payment for goods and services. (Note that this $75 figure is not adjusted annually for inflation.)
Example: If a donor gives a Christian school a payment of $100 and, in return, receives a ticket valued at $40 for an event, this is a quid pro quo contribution, and only $60 is deductible by the donor. Even though the deductible amount does not exceed $75, since the quid pro quo contribution received by the school is in excess of $75, the school must provide the donor with a written disclosure statement. The statement must include (a) the amount of the payment, (b) the value of the goods and services received by the donor, and (c) the amount of the contribution, which would be tax deductible (the amount in excess of the value of the goods and services received).
Can we give donation receipts for donations for tuition? Parents and relatives do not qualify for tax-deductible contribution receipts if they donate for their own children, adopted children, grandchildren, or children of their extended family, such as nieces and nephews. However, if individuals donate to the school’s financial aid fund or scholarship fund and the school (1) has full control over how the money will be spent, and (2) follows objective written standards in the awarding of the funds, the answer is yes. Schools are urged to adopt and follow objective financial aid programs.
A tax-deductible receipt can be provided to an individual who donates for a needy child and suggests that the school consider a particular nonrelated child. However, if the person designates the funds to a particular child without the school having full and final discretion in the spending of the funds, no tax-deductible receipt should be given.
IRS Publication 526, Charitable Contributions. For more detailed information about contribution issues, you need this publication, which provides information on a variety of topics including what to do if contributions are made through payroll deductions, how much of a deduction a donor can use in a given tax year, and how deductions may be carried forward to future tax years.
IRS Form 8283, Noncash Charitable Contributions. If a donor plans to claim a deduction for a contribution of property valued at $500 or more, this form is used to report that contribution. Property valued at more than $5,000, other than publicly traded securities, will generally need to have an independent appraisal and a signed acknowledgment by the donee (school or church) on part IV of the form. Donors must complete the form by the due date of their tax return in order to receive contribution deductions.
IRS Form 8282, Donee Information Return. Donee organizations such as schools and churches use this form to report the sale, exchange, consumption, or other disposition of donated property within two years of the contribution date of the donated property for which the donee signed an acknowledgment on Form 8283. No reporting is required if the property is consumed or distributed free of charge in furtherance of the organization’s tax-exempt purposes. The return must be filed within 125 days following the disposition of the property.
Vehicle donations. The American Jobs Creation Act of 2004 made significant changes in the Internal Revenue Code regarding vehicle donations to charities. The changes apply to donations of vehicles valued at over $500, in most cases limiting the amount of the deduction for a donated vehicle to the proceeds of its subsequent sale by the charity. The act also imposes new obligations on charities receiving vehicles. For complete information, please go to the IRS website.
Religious Liberty and Charitable Donation Protection Act of 1998 (PL 105-183). Bankruptcy trustees are prohibited from objecting to bankruptcy plans because the debtor proposes to continue making charitable contributions. Trustees are also prohibited from recovering contributions made by bankrupt debtors to a church or other charity within the 12 months prior to debtors’ declaring bankruptcy, unless the contributions were made with the intent to defraud creditors. Contributions are protected if they amount to less than 15 percent of a debtor’s gross annual income, or more if the debtor can establish a regular pattern of having given more.