While often not the sole or even a major factor in donating to a charitable organization, tax-deductible contributions are always a helpful incentive for donors. In exchange for their contribution, donors should receive accurate, written acknowledgments of their contributions.
Why it's Important to Acknowledge Tax-Deductible Contributions
There are a couple of important reasons why it is important to acknowledge tax-deductible contributions. One is that without generous donors, nonprofits cannot survive. Nonprofits depend on the generosity of their community, so it is important to thank these donors for their contributions to show your appreciation for their continued support. Generally, people want to support nonprofits and causes that are important to them, and they will continue to do so if they know their contributions are well used and appreciated.
There are also legal reasons why it is important to acknowledge tax-deductible contributions. Acknowledgment letters containing all the appropriate information helps your donors properly file their state and federal taxes. The IRS even has certain requirements as to what should be included in an acknowledgment letter, which we will cover below. Without the proper language in an acknowledgment letter, a donor could be denied tax deductions when filing their personal state and federal taxes.
What Should You Include in an Acknowledgment Letter?
Acknowledgment letters are a good way to say thank you to your donors as well as a way to formally acknowledge the appropriate details of each contribution, which will help your donors when they are filing their personal tax returns. To make sure you cover your bases, there are some details to remember noting when providing acknowledgment notices:
- Name of the organization
- Date of contribution
- A statement saying that you are a 501(c)(3) tax-exempt organization
- Amount of cash contribution
- Description of non-cash contributions, but not the value
- A statement that no goods or services were provided in exchange for the contribution
- If goods or services that value $250 or more were provided in exchange for the contribution, then a statement describing the goods or services provided and a good faith statement of the value
- If applicable, a statement that goods or services that consist entirely of intangible religious benefits were provided in exchange for contributions
- In a quid pro quo situation, you’ll want to be clear about the value of the contribution received, the value of the goods or services provided in exchange for the contributions, and that the donor can only claim tax deductions on the difference
What You Do NOT Need to Include in an Acknowledgment Letter
There are certain things that do not necessarily need to be acknowledged in an acknowledgment letter.
Token exchanges are what the IRS describes as “insubstantial goods or services a charitable organization provides in exchange for contributions.” Such exchanges do not have to be recorded in acknowledgment letters.
There are also certain membership benefits that are not required to be listed in an acknowledgment letter. You are not required to include the following benefits if the annual membership benefits are valued at $75 or less:
- Free or discounted admissions to the charitable organization’s facilities or events
- Discounts on purchases from the organization’s gift shop
- Free or discounted parking
- Free or discounted admission to member-only events sponsored by an organization where a per-person person cost is within the “low-cost articles limits”
Sample Acknowledgment Language
Here are some samples of language you can use in your acknowledgment letters for cash and non-cash contributions.
“Thank you for your contribution of [insert amount donated] on [ Date]. No goods or services were provided in exchange for this contribution, therefore the full amount of your donation is tax-deductible. [Name of nonprofit] is an exempt organization as described in Section 501(c)(3) of the Internal Revenue Code, EIN# .”
“Thank you for the contribution of the one used bookshelf that [Name of nonprofit] , a 501(c)(3) not for profit organization, received on [Date]. No goods or services were provided in exchange for this contribution.”
You can add more personable language, but this is the key language and information you’ll want to and need to include. Remember that if goods or services of more than $250 were provided in exchange for any contribution, then that needs to be included and described, along with a good-faith statement of the value.
When and How Should Acknowledgments be Delivered?
Organizations may send acknowledgment letters via paper copy in the mail or in an email. These letters should typically be sent no later than January 31 of the year following the donation. This is because donors must receive an acknowledgment by the earlier of
1) the date on which the donor files their federal tax returns for the year of the contributions, or
2) the due date of the return, including extensions.
That being said, it is always a good idea to send acknowledgment letters as soon as possible so that donors know their contribution was received.
Acknowledging Donors' Unreimbursed Expenses
If a donor asks for acknowledgment of unreimbursed expenses, such as a volunteer’s travel expenses, you only need to provide an acknowledgment letter if the amount totals more than $250. If it is less than $250, then you can still provide a receipt, but the donor does not need an acknowledgment letter to claim the deduction. In such a situation, if you provide an acknowledgment letter, be sure to include a description of the goods or services provided and a good-faith estimate of the value of the goods or services provided. If intangible religious benefits were provided in exchange for the contribution, then that should also be noted.
What to Do if a Contribution is Made through a Donor-Advised Fund
If a contribution is made through a donor-advised fund, it is always a good idea to send a thank-you note, but it is not necessary to include tax-deductible language, as the fund will have already sent a tax receipt.
What Contributions are Tax-Deductible?
Only charitable contributions to qualified organizations are tax-deductible. Contributions can be monetary or in-kind. Just remember to provide an acknowledgment letter for the contribution(s). You can use the IRS’s Tax Exempt Organization Search tool to confirm that your organization is listed as a qualified organization. The IRS lists the following types of organizations as qualified:
- Community chests, corporations, trusts, funds, or foundations organized or created in or under the laws of the United States, any state, the District of Columbia, or any possession of the United States (including Puerto Rico) , and organized only for the purposes of charity, religion, science, literature, education, or international or national amateur sports
- War veterans’ organizations organized or created in the United States or any of its possessions (including Puerto Rico)
- Domestic fraternal societies, orders, and associations operating under the lodge system (holding regular meetings in a designated place with an adopted form of government), and operating for charitable purposes
- Certain nonprofit cemetery organizations or corporations, as long as the donation cannot be used for a single lot or mausoleum crypt
- The United States or any state, the District of Columbia, a U.S. possession (including Puerto Rico), a political subdivision of a state or U.S. possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions, and only if the contribution is used solely for public purposes
As long as a contribution, cash or non-cash, is made to a qualified charitable organization, and proper acknowledgment is made, that contribution is tax-deductible.
What’s Not Deductible
The following types of contributions are not tax-deductible:
- Donations to political parties, political campaigns, or political action committees
- Gifts to individuals
- Contributions to business associations, labor unions, or chambers of commerce
- Contributions to for-profit hospitals and schools
- Contributions to foreign governments
The Tax Cuts and Jobs Act (TCJA) went into effect on January 1, 2018. It maintains personal tax deduction for charitable contributions and increased the limit to 60%. However, fewer taxpayers are able to deduct charitable contributions, because, in order to receive the deductions, the contributions must be itemized instead of taking the standard deduction. The standard deduction was approximately doubled by the TCJA, and it eliminated or limited many personal deductions.
Consequences of Failing to Provide an Acknowledgment Letter
Without proper acknowledgment, the IRS can deny tax deductions for donors. So, the acknowledgment letter is more than just a thank you note, but an important document for your donors, so you should be careful to include all required language and to provide them the letter in a timely fashion. If you are unsure about the requirements, you can have an attorney look at your acknowledgment letter to ensure that it meets the standards.
It is always a good idea to thank your donors for their generous contributions. Thoughtful thank you notes can encourage donors to donate again. However, acknowledgment letters are also important to ensure that your donors are able to properly file their tax returns and claim any tax-deductions. If you have questions, you can refer to the IRS’s rules and regulations on charitable contributions here .