With the changing tax laws that go into effect this year, many organizations are wondering if receipts for contributions are still necessary since many people are no longer itemizing their deductions. This post has contributions from two expert lawyers, John Gear of John Gear Law, and Don Kramer of Nonprofit Issues.
You may be surprised to know that a charity has no legal obligation to acknowledge a charitable contribution if it does not provide any goods or services in return. However, a donor has an obligation to obtain a contemporaneous written acknowledgment of any gift of $250 or more if the donor wants to claim a charitable contribution deduction on the tax return for the year in which the gift was made.
A donor who makes a gift of cash in the form of actual currency needs the written acknowledgment to claim any deduction for the gift, regardless of the size. Most charities acknowledge all gifts, of whatever size, as a matter of best practices. They don’t want unhappy donors who can’t claim legitimate deductions.
If the charity is providing goods or services in return for a payment and the payment from the donor/purchaser is more than $75, the charity does have a legal obligation to notify the donor/purchaser of the value of such goods or services that cannot be deducted. Only the amount that exceeds the value of the goods or services can be deducted as a charitable contribution. The charity can be fined for failure to provide the information.
There are a few exceptions to the rules for reducing the charitable contribution deduction, particularly those related to “low cost items” of insubstantial value. The limits change annually. In 2019, a deduction does not have to be reduced if it is at least $55.50 and the cost of the stuff to the charity (the cost and not the value) does not exceed $11.10. Again, most charities notify the donor/purchasers of the amount they can deduct in a quid pro quo gift even if the payment is less than $75.
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With the sharp change in federal taxes where most ordinary folks will not be itemizing any longer, receipts for contributions are going to become less and less significant.
For most nonprofits, the “receipt” will still be important more as an important donor-relations tool. It will serve as a thank you, but also as a chance to ask for an additional contribution. I advise entities to never let an actual mailed envelope to a donor go out the door without a contribution envelope included. You can even mention it in your correspondence and suggest passing it on to others. Your donors probably know others who might become your donors.
Still have questions? As a partner and sponsor of ours, John Gear is happy to answer your questions!