Donation receipts are a fundamental part of the giving process. While their content is pretty straightforward, when and how you send them can mean the difference between happy donors and tax season headaches.
We put together a quick list of do’s and don’ts so you can streamline your receipt process in a way that is 100% IRS approved.
Before we get into that, let’s start with a common question.
“How Do I Write a Donation Receipt?”
Nonprofit donation receipts serve both donors and your nonprofit. Donors use them as a confirmation that their gift was received, and for charitable giving deductions when tax season rolls around.
Your organization can use donation receipts to aid in your accounting processes, and to track a donor’s history with your organization. While it is only legally required to send a donation receipt for gifts above $250, it’s best to send an individual receipt for every donation.
To serve both these purposes, your donation receipt should contain the following information:
- The name of the donor
- The name of your organization
- Your organization’s federal tax ID number, and a statement indication your organization is a registered 501(c)(3)
- The date of the donation
- The amount given OR a description of items donated, if any.
The final point is not required, but it’s recommended by most. In order for a donation to remain tax deductible, no goods or services can be exchanged for the donation amount. For example, event tickets, purchases from your online store, and raffle ticket purchases are not tax deductible.
There are also additional requirements if a donor gives goods or services, rather than the standard monetary donation. We’ll cover those requirements in the next section.
Many software options, like Neon One software products, automate this process, so your organization won’t have to worry about staying up to date on compliance laws.
The Do’s & Don’ts of Creating & Sending Donation Receipts
Taxes are complicated enough, so in order to make filing easier for your donors, it’s important to keep receipts simple and easy to understand. Here are four do’s and don’ts that will help you set up better donation receipts.
DO: Keep the Formatting Simple
Your donors should be able to quickly scan the receipt for the information they need — their donation amount, your organization’s federal tax ID, and the date of the donation. To make this information easy to find, opt for a simple email with minimal design elements, if any.
Also, be sure to save any flowery language for your thank you letter! A simple sentence expressing your appreciation is best for a donation receipt.
DON’T: Forget About Donations of Goods & Services
When it comes to the donations of goods & services (also known as in-kind donations), proper receipts are just as important. Staying consistent with your general monetary donation receipting practices shows that you appreciate in-kind gifts just as much as cash donations.
Donations of goods, such as vehicles or clothes, and services require a donation receipt if the value exceeds $250.
It’s the responsibility of the donor to provide an estimation of the donation’s value, but as a courtesy, your organization should also acknowledge the fair value of the donation in your receipt.
DO: Make Use of Automations
Automated receipting is a standard in many nonprofit software systems, and it can be a game changer when it comes to staying on top of your receipting process.
When you automate your receipt generation, you also standardize the look and feel of your receipts. This kind of consistency can make life much easier for your donors who give multiple times a year!
DON’T: Forget to Say Thanks!
A donation receipt doesn’t take the place of a well written thank you! Even if you have expressed your appreciation within the document.
According to NonprofitHub, first time donors who get a personalized thank you within 48 hours of their gift are 4 times more likely to give a 2nd gift. While that may seem like a lot of work, this can also easily be automated via software. Simply use mail merge tags to keep your personal touch.
DO: Remember to Send Out Year-End Receipts
If you’ve automated your receipting process to send out acknowledgements directly after the donation has been processed, you’re not required to send a year-end letter.
However, doing so can be a great way to celebrate your relationship with donors who have given multiple times a year. Especially for those valued recurring donors.
Year-end receipts should be sent in early January, so they reflect the previous year in its entirety. Nearly 1/3rd of giving happens in December, so sending any earlier can result in some missing gifts.
Your donor database should easily allow you to pull a list of contacts that have donated within the year, as well as provide information on how much they’ve donated. Once you have all that ready, you can use this template to inform your year-end receipts:
Dear [Contact First Name]
Wow – [year] was a big year for [Organization Name] as we [highllight big initiatives and outcomes from the year here]. You helped make it happen!
In [year], you contributed a total of $[Calendar Year Donation Amount].
[Organization Name] is a 501(c)(3) nonprofit organization and your donations are tax-deductible to the extent allowed by law. Our EIN number is [##-#######]. No gifts or services were provided to you in exchange for your gift. Instead, we were able to use the full [Calendar Year Donation Amount] to fund our programs.
[Development or Executive Director Signature uploaded as an image]
There you have it!
Now you’re all set to send proper donation receipts. Got any questions on donation best practices? Let us know in the comments below. We’re always happy to help.