The holiday season brings a welcome increase in generosity, and many nonprofits and churches see a significant rise in contributions during this time. While this support helps you carry out your mission, it also creates additional administrative and compliance responsibilities. Understanding how to process, record, and acknowledge seasonal gifts protects both your organization and your donors. With a few steady practices in place, you can move through the holidays with confidence and start the new year on solid ground.
Know What Counts as a Tax-Exempt Donation
If your organization is tax-exempt under Section 501(c), donors expect their contributions to qualify for deductions, which requires you to keep accurate records. While tax-exempt status covers federal income tax, it does not relieve you from payroll taxes or certain state obligations. Most nonprofits must file Form 990 annually; however, churches do not file this form but must still maintain thorough internal records.
These documents help donors verify their deductions. Keeping your records consistent and up-to-date protects your organization and ensures compliance with federal regulations.
Understanding the Difference Between Public Charities and Private Foundations
Holiday giving can affect your funding balance. Public charities rely on general public donations, while private foundations depend on a single source, like a family or corporation. The IRS has different regulations for each, with private foundations facing stricter rules, including required annual distributions and excise taxes. If your funding sources change, consult a CPA to reassess your organization's classification.
Record Holiday Donations Carefully
A strong internal process simplifies managing seasonal gift spikes. Each donation should be recorded in the year received: mailed checks count based on the postmark date, while credit card and online gifts count when processed. Accurate records assist donors in claiming deductions and help in preparing financial statements.
- Written Acknowledgments for Gifts of $250 or More: The IRS mandates that donors receive a written acknowledgment for contributions of $250 or more. This letter must include your organization's name, the date and amount of the donation, and whether any goods or services were provided in return. This acknowledgment is important for both the donor and your organization.
- Quid Pro Quo Gifts Above $75: If a donor receives something in return for their gift, such as a dinner event or holiday performance, you must tell them how much of their contribution is deductible. The IRS requires a written disclosure when the payment exceeds $75 and includes both a charitable portion and a benefit to the donor.
- Keeping Records for Noncash Gifts: Some donors use stock, goods, or other noncash property for their holiday giving. These items come with their own documentation rules. A CPA can help you determine what is required and how to keep your records complete.
Choose the Right Structure for Your Organization
Before the IRS grants tax-exempt status, your organization must be a recognized legal entity. Common options include a nonprofit corporation, which offers liability protection through a board, and a trust for foundations or long-term funds. An unincorporated association is simpler to set up but lacks the same legal safeguards. Your chosen structure affects governance and reporting responsibilities, so it's crucial to be clear on your organization's setup.
Strengthen Donor Engagement During the Holidays
Donor communication plays an important role during the holiday season. A timely thank-you message helps donors feel appreciated and reinforces their connection to your mission. Some organizations provide donors with a year-end giving summary to help them prepare for tax season. Others share short updates that show how seasonal gifts support ongoing programs. These small touches help build trust and encourage continued involvement throughout the year.
FAQs
Do all donations require a written acknowledgment? Only single contributions of $250 or more require a written acknowledgment.
How should I classify online or electronic gifts? Record the date the transaction is processed to determine the year the donor can claim the deduction.
Are gifts to individuals tax-deductible? No. Donations must be made to a qualified charitable organization for donors to claim a deduction.
What should we do if a donor contributes non-cash property? Keep detailed records. Some gifts also require the donor to file additional IRS forms.
Year-End / Pre-Tax Season Planning
Seasonal giving enhances your mission but brings added responsibilities. Myrick CPA assists nonprofits and churches with staying compliant and organized for tax season. Our virtual consultations and secure client portal simplify document sharing and provide expert guidance anytime, anywhere.
If you want to review your donation records or confirm that your non-profit organization or church is compliant, schedule a consultation with Myrick CPA. Happy Holidays!