by Jonathan A. Nelson
Estate planners like the attorneys at Smith Pugh & Nelson, PLC, are most frequently on the giving end of charitable contributions, but it is helpful to know how it works on both sides so everything is in place before it’s time to file your tax return. The following is an informative article from July 8, 2022, by my nonprofit law colleagues Ken Liu and Steve King at our associated firm Gammon & Grange, P.C.
A donor has just sent your nonprofit a generous check. How do you return this kind and important donor handshake?
There are specific steps charitable organizations receiving donations must follow to comply with IRS tax laws. Charitable organizations should know that donors cannot claim a tax deduction for contributions of $250 or more unless they obtain a contemporaneous, written acknowledgment of the contribution from the supported charity. Though obtaining this acknowledgment is the donor’s responsibility, an organization can, and should, assist the donor. The charity does this by providing a timely, written statement containing the charity’s legal name, the amount of cash contribution, a description (but not value) of non-cash contribution, and certain statements and good faith estimates, as described in IRS publication 1771.
The acknowledgment must be contemporaneous, which is described by IRS publication 1771 as “the earlier of the date on which the donor actually files his or her federal income tax return for the year of the contribution; or the due date (including extensions) of the return.” A year-end statement itemizing all gifts from that donor during the calendar year is sufficient, but best practices and common courtesy encourage monthly receipts.
Note for donors: A donor should not attach the acknowledgement to his or her individual income tax return but must retain it to substantiate the contribution. For non-cash gifts that total more than $500 in one tax year, donors must file Form 8283. For more information on donor’s tax deduction claims, see IRS publication 1771.
A timely acknowledgement also builds donor rapport and reinforces that your organization values conscientious fiscal stewardship.
Ken Liu has worked with hundreds of charities and other nonprofits as Director of Gammon & Grange’s trademark and branding practice. Unfortunately, his earliest experience making a sacrificial charitable contribution was not positive. Ken says, “When I was fairly young in my career, I gave a $1000 donation to a charity, which at the time, was a huge amount. Though a big sacrifice, it was a donation I was happy making to a charity I much admired.
“When months passed without any donation acknowledgement or word of thanks, I remember how disappointed I felt. I finally wrote, asking whether this gift was received and if I could expect a receipt. Months later I received a receipt and an apology with it, but I couldn’t deny that my enthusiasm for and confidence in this charity had taken a hit.” As Ken experienced, year-end receipt will satisfy the IRS, but omission of more timely receipts can feel to donors like a rebuffed handshake.
Ken is now the Board President of Good Samaritan Advocates, a faith-based legal aid program in the suburban Washington area launched and incubated by Gammon & Grange [in 2006]. Marked by the incident, Ken makes sure every gift, especially the smallest ones, are receipted and recognized in a timely and personalized manner. “Now on the inside of charitable organizations, I understand the importance of promptly acknowledging donations and including a note of appreciation. Donation receipts are important for building donor relationship and necessary for donors who itemize deductions. It is a personal way to recognize their kind gift.”
Looking for a nonprofit lawyer? Gammon & Grange, P.C. has many knowledgeable nonprofit attorneys and church attorneys who can advise you on many areas that pertain to your nonprofit. Contact us today to discuss your particular legal needs.
For religious organizations, learn more about tax exemption for churches in our recent article.
Authored by Gammon & Grange, P.C. authors; contributions from Ken Liu and Steve King.
Interested in Good Samaritan Advocates? Learn more here.
Original article here.
Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.
The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.