It doesn't take long working in ministry before you hear the question:

The scenario is probably familiar to you. A member or supporter gave money and thought they could deduct that as a charitable donation. But not all donations are created equal. Just because a person gave money or something tangible to a ministry doesn't always mean they can count it against their taxes.

Covering this whole topic comprehensively in one post would be impossible... and I won't attempt to. But here are some common things I encounter from ministry leaders when it comes to determining if what you have received from a supporter is tax-deductible or not.

What's your designation?

First things first: Does your church have a 501(c)3 status?

In the US, churches are considered to be charitable even without the 501c3 filing. That being said, there are benefits to having the filing. Here are a couple:

1. Having a 501(c)(3) status gives your donors the assurance that your ministry is officially recognized by the IRS as tax-exempt, which guarantees that their donations will be tax-deductible.
2. Your ministry will be able to take advantage of many discounts and benefits which are only available to 501c3 organizations. This includes discounts on services, software, and tangible items.
3. Having a 501c3 status in some states can save churches money with state sales and employment taxes. In some states, this can equate to thousands of dollars in savings.

These are just some of the many advantages of filing your church as a 501(c)3. You can access the form and find filing instructions here.

Money never given

This one seems obvious, but it needs to be stated: A person can't deduct the money they haven't given.

I'm always surprised how often ministers get questions from members who have pledged money to the church. If the person hasn't finished giving what they pledged, they can only deduct what they've given so far, not the entire pledged amount. They will either need to finish their pledge before the year is over or the rest of it will be applied to next year's taxes.

What was the money for?

Again, another seemingly obvious question. But this one is important to ask, too.

Was the money given to buy entry to a dinner held by the church? Did the person purchase a raffle ticket at a fundraising event? In other words, did the donor get something in return for their money? If so, that would classify as a purchase, not a donation.

That doesn't necessarily mean no deduction can be filed, however. But things get a little tricky. The donor has to subtract the fair market value of what they received, then deduct the difference. Below are a few examples of what I mean:

• If a member paid $30 to attend a fundraiser dinner, they would have to subtract the $14 they would have spent for that meal at a restaurant. That would leave them with $16 that can be deducted from their taxes.
• If someone spends $15 on food being sold for a youth ministry fundraiser (like donuts or cookie dough), they would subtract the $10 the food is worth, leaving them with $5 for a deduction.
• A raffle or lottery-based ticket cannot be deducted at all, no matter the market value of anything they win.

Simply put: If a donor gets something in return, they can't deduct it.

Benevolence

Another question to ask while we're at it: was the money given directly to a family in need? For instance, was the money raised to help pay another member's medical bills?

While that kind of giving clearly reflects the type of attitude found in the early church (Acts 2:44-47), the IRS won't allow that offering to be deducted if the money was passed along to the family without first passing through the church.

What do I mean? If the church takes up a collection, then immediately hands the money to the member in need, the money was never actually handled by the church in an official capacity. It went straight from the donor to the beneficiary. However, if the money is first put into a fund managed by the church, then given to the beneficiary by the organization in the form of something like a check from the church, the giving can be counted as an official donation.

Last minute donations

The timing of the gift matters.

If a member sends a check in December that is post-dated for January, the money on that check can only be applied as a January donation. A check has to have the current date and be received by the church before Dec. 31 to count as a deduction for this financial year.

Though if the donation is via debit or credit, a donor could give at 11:59pm on Dec. 31 and still apply that donation to this year's taxes, even if the donor doesn't pay their credit card bill until sometime in January. In this case, it's the processing date that matters.

Lack of documentation

For a church or ministry, this is the most important item on this list.

Without a receipt, a supporter cannot write off their donation from their taxes. The IRS requires proof, no matter the size of the donation. A letter from the church or charity is sufficient. Donors need a copy of this letter prior to filing their taxes.

This is true of non-cash and in-kind donations. Whether a person donated a couch or changed all the lightbulbs in the sanctuary for free, they can't write off the market value of their gift unless there is written documentation that your organization received their generosity.

Conclusion

While there is more to tax-deductible donations than what I've written above, this post should give you better footing when explaining the details to your donors. We know how challenging it can be to navigate the ins and outs of church giving and contributions. Feel free to reach out to us HERE if you have any questions.

Lorri Support Manager