For many nonprofit organizations, donor contributions are a significant source of their revenue. It is important to send donor acknowledgment, or thank-you letters, to not only thank donors for their support but to also provide written substantiation to support a tax deduction. Donors are more likely to continue to support your organization when they feel valued and you make an effort to build a relationship with them. Acknowledgment letters should be sent for all types of contributions, including cash/checks, in-kinds (noncash – including property, goods, and services), online giving, investment products (stock/mutual fund shares), cryptocurrency, etc. Your donor acknowledgment letters should include the following information.
- Your organization’s full legal name and a statement that the organization is a public charity recognized as tax-exempt by the IRS under Section 501(c)(3).
- The name of the donor. This should be the name the donor used to make the gift. In some cases, your organization will receive a donation through a donor advised fund that is managed by a charitable foundation. An acknowledgment letter, including the amount of the donation, can be sent to the charitable foundation and a general thank you letter (with no dollar amount stated) can be sent to the donor who established the fund. It is important to remember that the donation was received from the charitable foundation. The donor who established the donor-advised fund would have received an acknowledgment for tax substantiation from the charitable foundation when the fund was established.
- The date of the donation. The acknowledgment letter should document the date that the contribution was received by the organization. For donations received through the mail at year-end, the best practice is to use the postmark date on the envelope as the date of donation. This is important to ensure the donor gets the tax deduction in the correct year.
- The dollar amount of the donation or description of the donation. Thank-you letters for cash and check donations should include the dollar amount of the donation. Letters for in-kinds, and other noncash gifts, should not include a dollar amount. For in-kind gifts, the donor is responsible for valuing the donation; therefore, you should not include an amount in the donor acknowledgment letter, only a description of the gift. Letters for stock/mutual fund donations should include the number of shares received, the name of the stock/mutual fund and can include the high and low share price on the donation date. If your organization receives cryptocurrency donations, the letter should include the amount donated and the type of currency. Thank-you letters for property should include the physical address of the property but not the value.
- A description of any goods or services the donor received in return for their donation. For example, if a donor receives a meal, entertainment, or other items of value in return for their donation, it is important to describe that in the letter and provide an estimate of the value they received. A tax deduction is allowed for the difference between the donation and the value received in return. If the donor did not receive anything of value in return, a statement that “no goods or services were provided by the organization in return for the contribution” should be included in the acknowledgment.
Donor acknowledgment letters should be sent promptly after receiving the donation because the Internal Revenue Service (IRS) requires donors to have a written receipt of their charitable contributions in order to claim donations over $250 on their tax return. In addition, it is important to thank your donors for contributions of all values and to let your donors know how their contribution was used or supported your organization.
If you have additional questions regarding donor acknowledgment letters, contact your Hawkins Ash professional.