It’s pretty obvious that a benefit of donating excess items is knowing you have helped someone in need! But secondary motivation to that awesome feeling can be the tax benefits received from giving a tax deductible donation to a nonprofit organization! This short guide will give donors an idea about what type of items are tax deductible and gives nonprofits an example of a tax receipt and the information needed.
Criteria for a Tax Deductible Donation
One factor to keep in mind when looking to donate your goods is that in order to receive a tax receipt, your donation must meet a few basic criteria:
- Your donation must be money or physical property given to a qualified organization. Unfortunately, a service or time you contribute does not qualify as a deductible donation.
- When donating physical items, the value of the deduction depends on “Fair Market Value” of your donation. The Internal Revenue Service (IRS) provides a definition and guide to determining “Fair Market Value” in “Publication 526 – Charitable Contributions”.
- A donation must be given to an organization, and cannot be donated to an individual. You may know of an individual that could really use your donation; however, for your donation to be eligible for a deduction, it must be to a qualified nonprofit organization.
How to Write a Tax Receipt
In a few simple steps, nonprofit organizations can create a simple template that can be used every time they need to write a tax receipt! A tax receipt can be sent as an email, a letter, or filled out in person. It is important to remember that the information provided on a tax receipt will potentially be used many months later when a donor is filing taxes, and should be as descriptive as possible. Information to provide on every tax receipt includes:
- The name of the donor and the organization you are representing.
- An itemized list with corresponding item values based on fair market value.
- Information on any benefit or material good received from the donation (i.e. a ticket to an event or t-shirt from the organization) that must be subtracted from the total tax deduction.
- A statement showing your status as a nonprofit by the IRS, the corresponding IRS Code section, and your organizations tax identification number. The donor will use this information later for tax deduction purposes.
To finish off this post, here is an example of a tax receipt template that includes this important information:
Tax Receipt Author
Donation Receipt for Sample Donation
Donor Name received $ in compensation for this donation.
Organization is recognized as a nonprofit by the IRS.
IRS Code: (Section 501(c)(3)
Tax Identification Number: XXXXXXXXX
To save time when writing tax receipts, once a template is created, save it on your computer to fill out and print later or print out blank copies to fill out by hand!
Denny Falls is a 2013 project management intern at Zealous Good, an in-kind donations marketplace in Chicago. You can find Denny on Twitter at @dfallss and on Google+ or Zealous Good on Facebook and Twitter at @ZealousGood.