Part of running most successful nonprofit organizations includes fundraising and handling donations. When you receive donations, it's important to keep a record of the donated value and provide a receipt to the donor for their end-of-the-year records and for tax purposes. This article covers everything you need to know about creating nonprofit donation receipts from a template.
What Does 501(c)(3) Mean?
When an organization, business, trust, or other entity is operated exclusively to provide some sort of public benefit, it can file IRS form 1023 to become a 501(c)(3) nonprofit. This exempts the organization from having to pay taxes but also requires that it adhere to strict guidelines. In addition to being tax-exempt itself, any person or entity that makes a charitable contribution to a 501(c)(3) organization can deduct the amount of the contribution from their own taxes, as well.
What Makes a Business Nonprofit
According to IRS.gov, for an organization to be tax-exempt under section 501(c)(3) of the Internal Revenue Code, it must be organized and operated exclusively for exempt purposes. Exempt purposes include charity, religion, education, science, literacy, public safety, fostering national and international amateur sports, and preventing cruelty to children or animals.
Charity generally refers to activities like relief for the poor, distressed, or underprivileged, advancement of religion, education, or science, erecting and maintaining public buildings, monuments, or works, lessening the burdens of government or neighborhood tensions, eliminating prejudice and discrimination, defending human and civil rights, or combating juvenile delinquency.
In addition to being operated for exempt purposes only, none of a nonprofit's earnings may benefit private shareholders or individuals. Nonprofits also cannot be significantly involved in political or lobbying activities.
Why Are Donations Important for Nonprofit Organizations?
Many nonprofit organizations exist, and you are likely familiar with some of the bigger names. These include the American Red Cross, the Boy Scouts of America, Goodwill, United Way, Habitat for Humanity, the Special Olympics, and the YMCA. One thing all nonprofits have in common is that they tend to rely on donating in order to operate.
Not only does much of the funding for these organizations come from charitable donations, but their 501(c)(3) status is what makes it possible for them to receive these donations in the first place. Donors — particularly larger donors — tend to only donate to organizations with this status since it is required for them to take the associated tax-deduction. In contrast, any donations made to organizations without 501(c)(3) status are not tax-deductible for the donor.
What Are Donation Receipts Used for?
When a donor makes a donation, whether it is monetary or consists of goods and services, the value of that donation needs to be recorded by the organization. The donor will likely also want a record of the transaction. This is where donation receipts come into play. Just like a regular receipt, a donation receipt provides a record of goods or services that have changed hands.
By creating receipts for donations received, nonprofits create a record of each transaction. These records provide proof of income for the organization and can also make bookkeeping and accounting easier. Because nonprofits must meet strict guidelines set out by the IRS to maintain their 501(c)(3) status, having these records on hand can prove valuable in the event of an audit.
Keeping records of donations also enables nonprofits to track their top donors. By sending thank-you notes to those donors, these organizations can encourage continued support. Knowing who the top donors are also provides a list of names to reach out to in times of need.
Charitable Donation Tax Deductions
From the donor side of things, receipts are important when it comes to tax time. While any donations valued under $250 can be claimed on tax returns without a receipt, anything over that amount requires a record. Donations valued at more than $500 must also be described in full, and a receipt is the perfect place to keep that description.
Because the tax deduction is a strong motivator for many donors, being able to offer receipts for all donations is vital for any organization that relies on charitable giving.
IRS Requirements for Donation Receipts
Donation receipts must contain certain information to be considered valid by the IRS.
What Qualifies as a Donation?
First, note that donations must meet certain criteria. They must be some sort of good or service that is provided without anything in return. For example, if a donor attends a fundraiser and pays for their dinner, they cannot deduct what they paid for dinner as a charitable donation since they received food in return. However, if they write a check to the nonprofit organization or offer to provide a service later, those amounts do qualify.
Information Required on the Receipt
At a minimum, the charitable donation receipt form must contain the full name of the organization, the donation date, and the total amount of any cash donation. Donation forms should also contain descriptions of the donated item(s), as well as a good faith estimate of the donation value.
It is also recommended that a phrase similar to the following be included: "There were no goods or services provided in exchange for this donation." This certifies that the donation was made free and clear of any reciprocation from the organization. The name of the donor and the nonprofit's address and phone number should also be included.
Other Rules About Charitable Donations
To claim a charitable tax deduction, donors must have receipts for any donations valued at over $250. The receipt must also contain a description of the donation if the value is more than $500. For donations that exceed $5,000, the donated property or service must be assessed by a "qualified appraiser" to verify that the amount is valid.
The charitable organization is also legally required to provide a written disclosure to donors who receive goods or services in exchange for payments of more than $75.
Using a Donation Receipt Template
The nice thing about using a template to create a donor receipt is that most of the work is done for you. All of the formatting is in place and you simply need to add your specific information or personalize it in some way. It also looks much more professional than something you might quickly slap together using Excel or Microsoft Word.
What to Look for in a Template
A donation receipt template should include all of the fields needed for the required information. As described above, this means there should be a place to list the organization's name and address, the date, a description of each donated item, and the value of each donated item or monetary contribution.
The template should also include a place for additional notes so you can include statements verifying that the appraisal occurred or that there were no goods or services offered in exchange. If possible, a place to include your nonprofit's logo will make the receipt more personalized and allow the donor to recognize it more readily.
Use Skynova for Donation Receipt Templates and More
Skynova has multiple templates and software to help small businesses, including nonprofit 501(c)(3) organizations. Our receipt template can be used for donations and contains fields you can customize. The completed receipt is printable, or it can also be sent via email to the donor along with a donation receipt letter thanking them.
You can find many other templates on Skynova's website, including ones for invoicing, estimating, quoting, and more. Skynova also offers accounting software that comes with all-in-one invoicing and accounting for small businesses, allowing you to get started in seconds and keep accurate records. Sign up today.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with a professional accountant or tax advisor to ensure that you're meeting accounting standards.