Non-Profit Series: 8. Tax-deductible Contributions

Written by Sagan L. Carman-Downer

The previous article in this series explained that one of the benefits of a non-profit organization obtaining 501(c)(3) status, is that contributions made by others are tax deductible. This means that the person or business that donates (the donor), can deduct that amount from their taxable income, which may help lower their tax burden. The non-profit that is receiving the donation (the donee), and the donor, must comply with certain federal rules regarding disclosures and recordkeeping. This article will explain some of those requirements for cash contributions. It’s important to note that the requirements discussed in this article are for cash contributions, and will differ if the contribution is in the form of goods or services.

Requirements of Donor

To take the tax deduction, the donor is required to keep a record of the contribution. For a cash contributions (which includes cash, checks, electronics funds transfers, debit cards, credit cards, and payroll deductions), the donor must keep one of the following: a bank record (canceled check, bank statement or credit card statement); a receipt from the donee; or a payroll deduction record. Simply keeping track in a check register will not be enough, one of the above records must be retained in order to deduct the contribution from the donor’s taxable income.

If the donor makes a cash contribution of $250 or more, they must also get an acknowledgment from the donee. This acknowledgment is explained in more detail below.

Requirements of Donee

If the donee receives a contribution of more than $75 from one individual or business, they must provide a disclosure statement to the donor. The disclosure must be written, must note the value of the contribution, and must inform the donee that the contribution is tax-deductible. If the donee does not provide this disclosure statement, the IRS may impose a fine on them.

As mentioned above, if the donee receives a cash contribution of $250 or more, they must provide an acknowledgment to the donor. The acknowledgment must meet the following requirements:

·         It must be written;

·         It must include the amount of cash contributed;

·         It must indicate whether the donor received goods or services for the contribution (including the value of the goods or services); and

·         It must be received by the donee before their tax return for that year is due.

This article provides a general guideline of the disclosure and record keeping requirements for cash contributions to non-profit organizations that have qualified for tax-exempt status under 501(c)(3). There may be additional requirements for larger cash contributions, and the requirements for contributions of goods or services will differ significantly. There are also additional rules on whether the donor can deduct these contributions, and if they can, how much can be deducted. The extent to which contribution is deductible will depend on each individual’s circumstances, so it would be best to speak with an attorney or other tax professional to discuss your specific situation.