IRS Requirements for Tax-Deductible Receipts

Anytime a donor contributes $250 or more (in one sum) to a nonprofit organization, this contribution can only be claimed as a tax deduction by the donor if the receiving nonprofit gives them a tax deductible receipt.

While nonprofits themselves are not required to give such receipts, they can greatly assist donors by doing so. The IRS has set forth 3 requirements for tax deductible receipts: They must (1) be contemporaneous with the donation; (2) be written; and (3) contain certain information.

Note that the first rules set forth below apply where the nonprofit has not furnished goods or services to the donor in return for the contribution. Following those general rules is a discussion of the additional requirements that become relevant when a nonprofit does provide goods or services in return for a donation.

Disclaimer

Please note that the following discussion is not legal or tax advice and gives no guarantees of any kind. Moreover, the conclusions you reach based on the material below will depend upon whether you accurately judge the circumstances of your situation.

(1) Contemporaneous

The donor must receive the receipt by the earlier of: (1) the date on which the donor actually files his or her individual federal income tax return for the year of the contribution; or (2) the due date (including extensions) of the tax return.

(2) Written

There are no IRS forms available for these receipts, and the requirements are quite loose. Generally, letters, postcards, or computer-generated forms are acceptable. Moreover, the receipt can be a paper or electronic copy (such as an email).

(3) Required Information

The receipt must contain:

1. The name of the nonprofit;
2. The amount of cash contributed, or a description (but not the value) of a non-cash contribution; and
3. One of the following:
1. A statement that no goods or services were provided by the nonprofit in return for the contribution; or
2. A description and good faith estimate of the value of the goods or services provided by the nonprofit in return for the contribution (see below for further explanation and examples); or
3. A statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits (see explanation below)

A nonprofit may have offered goods or services in return for a contribution whenever the donor has received something of value in exchange for the donation. For example, where the donor contributed $100 to an organization, and by doing so, also gained admission to a conference put on by the organization, thereby receiving the value of the conference admission in return for the contribution. Goods and services include cash, property, services, benefits, or privileges. There are several exceptions, however:

Token exception: Goods or services received by a donor are not considered for the purposes of tax deductible receipts where they are “insubstantial.” Goods or services are considered “insubstantial” if they are free to the donor, worth $10.20 or less, and are unordered by the donor, or if they occur:

1. In the context of a fund-raising campaign;
2. The nonprofit informs the donor of the amount of the donation that is tax deductible by the donor; and
3. Either:
1. The fair market value of the benefits received by the donor does not exceed the lesser of 2% of the donation or $102.00; OR,
2. The payment is at least $51.00, the only items provided bear the nonprofit’s name or logo (e.g., calendars, mugs, posters, etc.), and the cost of the items is $10.20 or less

Membership benefits exception: Where a nonprofit gives a donor membership benefits (annual recurring rights or privileges) in return for a contribution, these benefits are considered “insubstantial” if they are provided in exchange for an annual payment of $75.00 or less. Examples of such membership benefits include free parking, discounted admissions to the nonprofit’s facilities or events, discounts on purchases from the nonprofit’s gift shop, etc.

Intangible religious benefits exception: Intangible religious benefits are generally benefits provided by a nonprofit operated exclusively for religious purposes, and that are not usually sold in commercial transactions. For example, admission to a religious ceremony would be an intangible religious benefit, but education leading to a recognized religious degree would not.

Additional rules: Providing goods or services in return for contributions

Where a nonprofit provides goods or services to a donor in return for the donor’s contribution to that nonprofit, the donor can only take a contribution deduction to the extent to which their contribution exceeded the fair market value of the goods or services they received in return.

Thus, the nonprofit in such a case is required to provide a written disclosure statement to donors who make payments exceeding $75.00, partly as a contribution, and party for goods and services provided by the nonprofit.

The required disclosure statement must:

1. Be in writing;
2. Be made in a manner that is likely to come to the attention of the donor (for example, a disclosure in small print within a larger document would likely fail to meet this requirement);
3. Be given to the donor in connection with either the nonprofit’s solicitation of the donor’s contribution, or the receipt of the contribution itself;
4. Inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of money (and the fair market value of property other than money) contributed by the donor over the value of goods or services provided by the organization; and
5. Provide the donor with an estimate of the fair market value of the goods or services

Note that this written disclosure is not necessary if the goods or services provided fall under one of the three exceptions described above. Moreover, it is also unnecessary where there is no donative element in the transaction, such as where an individual makes a purchase at a nonprofit museum gift shop.

Conclusion

Your nonprofit can meet the needs of its donors by sending them a written receipt for their total annual gifts, at the end of the year, or at least by the date their taxes are due. As long as this receipt includes your nonprofit’s name, a sufficient description and/or amount of the contribution received, and a sufficient statement regarding whether any goods or services were given in exchange for the contribution, you will have satisfied the IRS requirements for a tax deductible receipt. Your donors can then legally claim a tax deduction for their contributions to your nonprofit.

More information on this topic is available in IRS Publication 1771, from which the above material was taken.

BEST FREE ACCOUNTING SOFTWARE: 8 PROGRAMS WE RECOMMEND / TurboCash 5, TAS Software, GnuCash, NCH Express Invoice. xTuple PostBooks. VT Cash Book, Invoice Expert XE, Adminsoft Accounts

Finance & Accountancy writes: These are tough times for businesses. Now, more than ever, it’s vital to keep a very close watch on your company finances.

And that’s where good accounting software can help, automating many of your business processes and producing detailed reports on precisely how you’re doing.

Deciding you need an accounting package is the easy part, of course – picking the best one for you is a different matter.

One of the first issues to consider is the amount of support you’ll need. If you’re a total beginner then it may be wise to choose a commercial package where there’s plenty of help available.

If you’re a little more experienced, though – or you just want to play around and learn the basics – then there’s a wide range of free accounting packages around, and we’ve highlighted eight of the best.

1. TurboCASH 5

TurboCash is an open source small business accounting package, which the developers say has more than 80,000 users worldwide.

It has all the usual standard functions – stock control, invoicing, debtors, creditors, general ledger, VAT accounting, balance sheet and income statements, and plenty of reports – and also supports multiple users, and even multiple companies.

As with any similar package, if you’re new to accounting in general then there’s a great deal to learn. TurboCASH does make things easier with example books, though, and a detailed online manual helps you to get started.

The program is also highly configurable, and it’s also a relief to use a free accounting tool which isn’t always demanding that you “upgrade”.

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2. TAS Basics

TAS Software (a division of Sage) sells several accounting packages, but gives Basics away for free. This means it has plenty of limitations – you can’t record sales orders or create invoices, for instance – and there’s no real support, but if you can live with that then Basics proves to be a very straightforward package.

It can maintain customer and supplier records; you’re able to maintain multiple bank accounts, recording the money in and out; simple reporting means it’s easy to record who owes you money (and who you own money to), and you get useful help with your VAT return.

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3. GnuCash

First released back in 1998, the open source GnuCash has been constantly developed ever since, and it’s now a very flexible accounting system.

A straightforward register makes it quick and easy to enter transactions, but there’s also plenty of power here: customer and supplier tracking, invoicing and bill payment, scheduled transaction support, and a host of reporting tools.

Advanced features include budget management and stock portfolios, while each of your accounts can be in different currencies. Double entry accounting and a reconciliation tool help you uncover any errors, and with versions available for Windows, Linux and Mac (and even an Android app) you can run the program just about anywhere.

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4. NCH Express Invoice

Express Invoice is free only for businesses with less than five employees, and annoyingly you’re asked to confirm that every time the program launches. That aside, though, Express Invoice is a very easy-to-use invoicing package.

After installation, you can create a quote or invoice immediately; just entering a customer’s name, product details and so on creates those records for you, and you can print, email or fax the results from within Express Invoice.

It’s straightforward to schedule recurring invoices, you can track payments as they come in, and reports keep you up to date with outstanding invoices, item sales and more. If you only need invoicing then check out Express Invoice first.

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5. xTuple PostBooks

PostBooks is another open source tool with all the usual accounting features: general ledger, accounts payable and receivable, invoicing, bank reconciliation and more, all accessible via a well-presented interface. But that’s just the start.

The program also includes equally capable modules like Products, Inventory, Purchase, Manufacture, CRM and Sales, for instance, while an integrated OpenRPT report writer helps you create the reports you need.

Unsurprisingly, this also comes with a steep learning curve, but PostBooks could be useful for larger businesses, and you can upgrade to commercial packages later if you need more power.

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6. VT Cash Book

If your accounting needs are simple then VT Cash Book might appeal, as it’s just about recording your income and expenditure. So there’s no database of customers or suppliers, no invoicing or purchase order module: instead you’ll spend most of your time simply entering transactions via VT Cash Book’s straightforward interface.

Still, the program does support multiple accounts, has a simple reconciliation option, and can help with your VAT returns. So if you’re a small trader, and just looking for a way to record your cash transactions, then VT Cash Book is worth a look.

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7. Invoice Expert XE

7. Invoice Expert XE

Invoice Expert XE is the free version of a commercial product, and has some major restrictions, the most significant being that you’re limited to 100 customers and products.

It’s still packed with powerful features, though – comprehensive quote and invoice creators, detailed inventory and customer management, useful reports, and more.

There are lots of configuration options, and an excellent interface makes the program very easy to use. (Although that’s just as well, as there’s no help.)

The 100 customer limit will be a big problem for most people, then, but if you have a small business where that isn’t an issue, Invoice Expert XE’s mix of power and simplicity could make it a reasonable choice.

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8. Adminsoft Accounts

Adminsoft Accounts is the work of a single developer, rather than the usual large team, but it doesn’t look that way from the feature list.

The program is a double entry accounting system which supports accounts payable and receivable, general ledger, invoicing, purchase order processing, stock control, payroll and more. And there are even a few specialist modules (AutoManager helps run a garage, for instance).

Learning how to use all this can take a while, as there are a vast number of menus and dialog boxes to explore. But if you need a lightweight program with plenty of functionality then Adminsoft Accounts could still be a good choice.

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