As the end of the year approaches, it is important to document contributions properly, so that donors may deduct the charitable contribution on their income tax return. This is especially important for 2020, since the CARES Act temporarily allows those who do not itemize their deductions to reduce their taxable income by up to $300.
The proper dating of year-end contributions involves dates, bookkeeping, and documentation.
- DATES For the IRS, it is the date of the check and the date that the congregation receives the contribution that matters, even if it is payment of a prepaid pledge for a future year, or a late payment of a pledge from a prior year. In the case of a mailed check, the postmark determines the date of receipt.
- If the check is dated in 2020 and received in 2020, it is an IRS contribution for 2020.
- If the check is dated in 2020, postmarked in 2020, but received in 2021, it is an IRS contribution for 2020.
- If the check is dated in 2020 and received in the offering plate in 2021, it is an IRS contribution for 2021.
- If the check is dated in 2020 and postmarked in 2021, it is an IRS contribution for 2021.
- If the check is dated in 2021 and received in 2020, it is an IRS contribution for 2021.
- BOOKKEEPING How is this entered in your recordkeeping?
- In your contributions software, the date of contribution should be the date received by the church (or 12/31 for gifts postmarked in December and received in January).
- It is important to make separate batches and/or deposits, so that contributions from two different IRS years are not mixed.
- If the contribution is payment of a pledge for a specific year, there are procedures for booking pre-paid pledges (using a Donor Restricted Fund) or pledges paid late (using invoices and Pledges Receivable.) These are important so that a congregation can make relevant comparisons from year to year, without getting misled by pre-paid pledges.
DOCUMENTATION For cash contributions of any amount, and for checks or electronic contributions of $250 or more, the congregation must provide written acknowledgement, including:
- The congregation’s name and address
- Amount(s) and date received by the congregation
- Check numbers are very helpful, although not required
- Statement that no goods or services were received by the donor
- The date of the statement must be before the date that the donor files the tax return
Further information and a sample acknowledgement are included in the Church Finance Handbook, beginning on page 15, with a sample acknowledgement on page 19.