Each year churches all across the United States face an annual occurrence: tax time. While churches that are properly operating and protected under the 501(c)(3) provisions of the IRS tax code don’t have to pay taxes themselves, contributors to these ministries often do. According to the IRS, a contribution made to a church may be a deductible contribution on the annual tax filing, but there must be proof that the contribution was made and done properly.
No specific law requires churches to issue donor receipts or requires donors to acquire receipts unless the contributed amount exceeds $250.
Although churches are not specifically required to issue receipts for contributions under $250, they should issue donor receipts as a good gesture and as proof of adequate record keeping. More importantly, churches will want to keep a cumulative total for each donor in order to provide year-end giving statements. Typically donors will give more than the threshold of $250, requiring them to show proof of giving. It is much easier for them to send in a statement of their cumulative giving for a year than to try to produce canceled checks, credit card statements, or multiple receipt letters.
If your church issues tax receipt letters, make sure they are done correctly and meet all the tax requirements to allow donors to deduct their contributions. The IRS calls this “substantiation of charitable contributions.”
The church must include a statement indicating whether it provided goods or services to the donor in consideration of the contribution. If the donation itself is a good or service, the church’s written acknowledgment must provide a description and good faith estimate of the value of those goods or services.
Churches that fail to provide donors with proper acknowledgment are jeopardizing the deductibility of their donors’ contributions. While most church donors would say that they don’t give to get a tax deduction, being able to deduct is a part of U.S. tax provisions, and churches must do their part to ensure they provide the proper documentation.