Getting this right says a lot about the administration of your church. Good stewards pay attention to the details and sweat them out so that those they serve will not have to. Can your congregants rest assured that the receipt you send them is IRS proof? Are you certain your receipt is fully compliant? Let me give you the do’s and don’ts of contribution statements.
1. Do make sure the name and address of the giver is correct: Believe it or not, many contribution statements have typos on the name and address. Before printing the contribution statements, review the names and addresses of your givers and make sure the information is correct.
2. Do give them out on or before January 31st: By the end of January, most taxpayers have received their W-2, 1098, 1099-misc forms, and other tax-related documents. In order for a taxpayer to deduct what they gave to the church they must receive their contribution statements before they file their tax returns. As a matter of practice, it is usually a good idea to make a public announcement that their statements will be issued by January 31st and that they should wait on filing their tax return until they receive the statement.
3. Do give a special acknowledgement when a donation is for $250.00 or more: Make sure you include the four pieces of additional information.
4. Do state whether each item is deductible: When your church issues a contribution statement, it normally lists the date of each contribution, the fund to which it was given, and the amount given. As a matter of clarity, your itemized contribution statement should state whether each item is deductible. There are some instances when a person makes a donation that is not tax deductible. Item 10 explains when a donation is not deductible.
5. Do not give a tax-deductible receipt for donated property: There are times when a person gives personal property to the church as a donation. In order for the giver to get a tax deduction, he/she must receive written acknowledgement from the church. See item six.
6. Do not estimate or appraise donated property: Section 170(f)(8)(b) and IRS regulation 1.170A-13(f) states that the written acknowledgement the church issues to the giver must not state the value of the donated item. In other words, the church is only allowed to give the donor a letter describing in detail the property that was donated and whether the church is able to use it to further its exempt purposes.
7. Do not give a receipt for donated time and services: Many churches this year will give a contribution statement to individuals who donated their time and services to the church. Though serving the church in this way is a noble thing, the tax code does not allow such individuals to receive a tax deduction for donated time and services.
8. Do not give a receipt for donated rent: Last year many pastors asked me if they were allowed to give their landlord a contribution statement for the discount he/she gave the church on the rent. This, too, is not tax deductible and the church must not issue a contribution statement for reduced rent.
9. Do not give a receipt for a donated car: If someone donates a car to your church, do not list the contribution in the normal contribution statement. In order for the donor to get a deduction, the church must give the donor a letter (contemporaneous written acknowledgment) that meets the requirements of section 170(f)(12). The letter must display the donor’s name, address, Social Security number, vehicle identification number, and whether the church will use the car, give it to a needy family, or sell it. In lieu of the letter, the church can give the donor copy B of form 1098C.
10. Do not give a deductible receipt for a restricted donation: There are times when a donor makes a contribution to the church, but with strings attached. If a donor donates a gift but maintains control over how the church uses the gift, it is not tax-deductible. In keeping with item 4 above, you can list the contribution, but list it as not deductible.