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The end of the year is a busy season for charities. As nearly one-third of all giving occurs in December, it is no wonder that starting from October, charities plunge into planning and running campaigns. Fundraising being the tip of the iceberg, there are many other tasks and reports that charitable organizations have to prepare at the end of the year.
Issuing annual donor receipts for contributors is one of the most challenging parts of that process. Below, you’ll learn why, as well as how to efficiently create donor receipts, saving time, effort, and resources for other important end-of-year activities.
Why are donor receipts so important?
But let's first recall what donor receipts stand for, and why nonprofits shouldn't neglect them.
In a nutshell, a donor receipt is a record or written acknowledgment of a donation made by a contributor, be it an individual or a company. This acknowledgment is not a mere formality. Donation receipts are important for both contributors and recipient companies for various reasons, such as:
First of all, to comply with the law.
Issuing donation receipts is required by the IRS (the CRA in Canada), and failing to do it, in some cases, may result in a penalty.
- To control financial records.
Having clear accounting drastically simplifies reconciliation, audits, and all things reporting a charity needs to do throughout a year (but mostly, at the end of it).
- To confirm to contributors that the donation was successfully received.
Being polite, grateful, and transparent helps build strong communication and trust-based relations with donors.
- To help donors receive a tax deduction.
Charitable donations are a subject for tax returns. But to make it happen, a donor must have records of their contributions in the form of properly created receipts that comply with the IRS/CRA requirements.
Tip: in the US, you can mention in the receipt that it is deductible, but it is not obligatory, so if you are not sure about it, better stick to mentioning just what is required. However, in Canada, you must note whether the receipt is deductible or not.
How can you issue donor receipts?
Companies may use two different approaches to issuing receipts for charitable donations, such as sending them immediately upon receiving a donation or sending a consolidated annual statement at the end of the year.
One can also choose to send the receipts by email or print them and send them by classic mail. For the IRS/CRA, it makes no difference, as long as they are signed and contain all the required information. Some say that sending classic paper letters is more polite, but you are free to choose what fits you best.
Sending receipts right away helps you thank your donors immediately and let them know that the contribution has reached the addressee successfully, which plays in favor of building strong relations with donors. The drawback is that the receipt may be lost by the time a donor will need it for the end-of-year tax reporting.
Tip: You can send a thank-you letter to confirm the donation and make your contributors feel valued. And then send a consolidated statement at the end of the year, to ensure that contributors have all their donation records by the tax season start.
Consolidating receipts into an annual donor receipts statement has its virtues, such as ensuring that donors receive the full account of their charitable donations. It's also a good option for charities that don't have an in-house accountant but invite a specialist for the end-of-year reporting etc.
What can go wrong? Let’s have a look.
Challenges of creating annual donation receipts
The fact is that preparing annual donor receipts is a complicated task that thousands of charitable organizations face every year end. Below, we have listed major pains associated with the task.
- Error-prone manual work
Manual data entry bears a great risk of receipts data loss or incorrect data. As a consequence, donors would not be able to claim tax returns for charitable donations. It can result in contributors' discouragement to donate in the future.
- Loads of time and resources needed
The manual export of receipts into a statement for each donor is extremely time-consuming. In fact, for a more or less successful nonprofit, it can take days of data extract and entry work. Often, they have to hire additional staff to perform this job. It requires extra expenses, which can be a burden for a nonprofit company.
- Ensuring the IRS/CRA compliance
To be eligible for tax deductions, donor receipts should meet certain standards required by the IRS (or CRA for Canada). For example, in the US the written acknowledgment (required for donations of $250 or more) should contain:
- Name of the organization;
- Amount of cash contribution;
- Description (but not value) of non-cash contribution;
- A statement that no goods or services were provided by the organization (if that is the case), and more.
Putting it manually into each receipt, you risk missing something If you don’t prepare your receipts correctly, you risk penalties or fines from the IRS or CRA
How can automation solve these issues?
All the things described above are the reality that many charities and nonprofits have to face every single end of the year.
So how to address the challenge? There are several options that are available, such as trying to issue the receipts as soon as you get the donations and automate the task.
- Issuing receipts upon receiving
In fact, sending donor receipt right upon receiving donations is not always an option, as doing it manually, you still have all the risks associated with manual operation. Plus, your donors may lose some of the receipts received during the year. So it’s a high probability that they may turn back to you for a consolidated statement at the end of the year not to miss any donation report.
- Make the most of automation
Automating routine tasks can be a better solution. Today hopefully, there is a variety of tools that allow automating accounting, billing, receipts issuing, etc. Those who use QuickBooks Online for accounting may find a plethora of offerings that work this or that way with the product. You just need to choose the tool that fits the bill the best way.
Here’s an example of how automation makes possible creating donation receipts in 5 simple steps with Donor Receipts - the application designed for nonprofits and charities to help them save time on creating and sending (by email or the classic mail) fully IRS/CRA compliant donor receipts. Once launched, you can customize the formatting and generate donor receipts based on QuickBooks Online data. It also converts invoices (even unpaid) and journal entries into receipts.
Step 1 - Launch the app
Step 2 - Fill in the necessary company data that will appear in receipts: name, address, phone, etc.
Step 3 - Set up the receipts format:
- choose the necessary information to be included in receipts to ensure they comply with the IRS or CRA
- create a letter to thank your donor for the contribution and describe the contribution (if applicable)
- add company logo
- add signature
Step 4 - Create receipts
Step 5 - Download created receipts to send later by mail or send them to donors immediately from the app.
That’s it. Use the saved time for other important reporting, planning future campaigns, coffee, jogging - in other words, the things that really deserve your attention.
Conclusion
The end of the year is a tough time for charitable organizations. Automating the process of issuing donation receipts can be an answer to how to survive this uber busy season. Eliminating risks, associated with manual operation, it can save days and hours of work and free your hands for more significant tasks.
Definitely, there is a lot of software on the market that will serve your needs. Donor Receipts is here simply because this is a top-rated app on the super-demanding QuickBooks Online marketplace.
Author Bio: Being an architect of business automation solutions and having a diverse software engineering background of 10+ years, Michael Astreiko founded CloudBusiness to help accountants and SMBs resolving their daily workflow challenges by integrating cutting edge software solutions into their routine tasks.