According to IRS Publication 1771, Charitable Contributions - Substantiation and Disclosure Requirements, donors must have a contemporaneous written acknowledgement from the recipient not-for-profit entity (NFP) in order to claim a tax deduction for each charitable contribution that exceeds $250. Generally the burden for obtaining substantiation is on the donor, as NFPs are not required to provide written acknowledgements for contributions received, except in the case of quid pro quo contributions of more than $75. However, organizations can express their appreciation by providing timely written communications that will substantiate their donors’ tax deduction claims.
The IRS states that written acknowledgements of charitable contributions should include the following:
Name of recipient NFP entity
Amount of cash or description (not estimated amount) of non-cash contribution received
As applicable:
* A statement that the NFP did not provide any goods or services in return, if that was the case
* A description and good faith estimate of the value (not cost) of any goods or services the NFP provided in return (e.g., market value of an event ticket)
* A statement that the goods or services provided by the NFP in return for the contribution were entirely intangible religious benefits, if that was the case
Both hard-copy and electronic formats are acceptable as long as the donor receives the acknowledgement by the time they file their return or the time their return is due, whichever occurs first. However, acknowledgements are not submitted with donors’ tax returns; they should simply be retained to substantiate contributions.
Note: Contributions are not aggregated. Thus, multiple contributions of less than $250 individually made throughout the year to the same NFP that, in total, exceed $250 would not require substantiation.
Helpful Tool: Donor Acknowledgement Templates
Having a customizable template for donor acknowledgements helps NFPs thank donors in a timely manner, boosting donor relations. The acknowledgement process also promotes accurate recordkeeping for contributions, which is essential for NFP financial reporting and compliance. A good internal practice is to have both finance and fund development staff review the template to ensure it supports IRS compliance, but also supports the organizational tone of donor communications.
Below are four sample contribution acknowledgements you can adapt for your organization’s use in helping donors substantiate claims for their tax-deductible contributions.
Cash Contribution
1/30/20XX (Date of letter to donor)
Dear John and Joan,
Thank you for your contribution to Save Our Charities (SOC) in support of our mission to provide advisory and training services that help charitable organizations be more effective. We received your contribution on
January 24, 20XX in the amount of $300.00
No goods or services were provided to you by SOC in return for your contribution.
SOC is recognized as a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code. Contributions to organizations with 501(c)(3) status may be tax deductible. Please consult your tax advisor to determine deductibility of this contribution. This letter is your receipt for income tax purposes.
Sincerely,
Save Our Charities
Non-Cash Property Contribution
1/30/20XX (Date of letter to donor)
Dear John and Joan,
Thank you for your contribution of [property, used equipment, publicly traded securities and/or virtual currencies], which is described below, to Save Our Charities (SOC) in support of our mission to provide advisory and training services that help charitable organizations be more effective. On January 24, 20XX, we received your contribution of:
5-Lenovo ThinkPad X1 Carbon Laptops
2-Dell Monitors (20”) IPS LED HD
1-HP X4000 Wireless Mouse
200 Shares of Apple Stock
3 Bitcoin
No goods or services were provided to you by SOC in return for your contribution.
SOC is recognized as a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code. Contributions to organizations with 501(c)(3) status may be tax deductible. Please consult your tax advisor to determine deductibility of this contribution. This letter is your receipt for income tax purposes.
Sincerely,
Save Our Charities
Donated Services or Use of Facilities
1/30/20XX (Date of letter to donor)
Dear John and Joan,
Thank you for your donation of [describe donated services or use of facilities] on January 24, 20XX [or during the period of January 1, 20XX through June 30, 20XX] to Save Our Charities (SOC) in support of our mission to provide advisory and training services that help charitable organizations be more effective.
No goods or services were provided to you by SOC in return for your contribution.
SOC is recognized as a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code. Contributions to organizations with 501(c)(3) status may be tax deductible. There are specific rules affecting the deductibility of donated services (or donated use of facilities), and we recommend that you consult your tax advisor to determine deductibility of this contribution, including any related out of pocket expenses. This letter is your receipt for income tax purposes.
Sincerely,
Save Our Charities
IRA Donation
1/30/20XX (Date of letter to donor)
Dear John and Joan,
Thank you for your charitable gift in the amount of $XXX,XXX from your Individual Retirement Account (IRA) on January 24, 20XX in support of our mission to provide advisory and training services that help charitable organizations be more effective. This acknowledges that we received your gift directly from your plan trustee/administrator and that it is your intention for all or a portion of your gift to qualify as a qualified charitable distribution from your IRA under section 408(d)(8) of the Internal Revenue Code.
No goods or services were provided to you by SOC in return for your contribution.
SOC is recognized as a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code. Your gift was not transferred to either a donor advised fund or a supporting organization as described in section 509(a)(3).
Please consult your tax advisor to determine deductibility of this charitable gift from your IRA. This letter is your receipt for income tax purposes.
Sincerely,
Save Our Charities
Tips and Additional Information
Even when written acknowledgements are not required by the IRS, it is still a good practice for NFPs to thank donors for gifts of any amount. This best practice improves recordkeeping and donor relations.
If a donor places a restriction on a gift, it is good practice to describe the restriction in the letter. This provides an avenue to clear any miscommunications between the parties.
A disclosure statement may be required when NFPs provide something of value to donors in return for their contributions. Read about quid pro quo rules here and adjust the sample acknowledgement letters accordingly.
Additional requirements may apply when NFPs receive certain noncash contributions. Read about substantiation requirements related to noncash contributions here.
Make sure your gift acceptance policies are up to date, as well as other governance policies and best practices.