It’s almost January 31^st! Who do I need to send a letter to?

With the new year comes the flurry of tax filing obligations—1099s, 990s, W-2s, and more. But what about those letters nonprofits send to their donors? Why do donors receive tax acknowledgment letters from some organizations and not others? And as a nonprofit, are you required or expected to send these letters to your donors?

Please Note: The information in this summary is derived from Publication 1771 (Rev. 11-2023), Catalog Number 20054Q, Department of the Treasury, Internal Revenue Service, and is provided for informational purposes with a focus on donor relations only and should not be considered legal or tax advice. However, other rules or considerations may apply depending on your specific circumstances. For guidance specific to your situation, please consult a qualified tax professional or legal advisor.

Why do donors need tax acknowledgement letters?

Donations to a 501(c)(3) are generally tax-deductible, meaning that they can be used to reduce the taxable income a filer reports, and thus lower their tax burden. This provision in the tax code is intended to incentivize charitable donations as a means of promoting philanthropy. In other words, Uncle Sam rewards you for giving to charities by lowering your tax bill.

Donors who wish to take a tax-deduction for charitable contributions are required to provide documentation for gifts of $250 or more, namely what the IRS calls a “contemporaneous written acknowledgment.”

Is a non-profit required to send thank you letters and tax acknowledgements?

The IRS makes it clear that the responsibility for documentation is on the donor, not the charity. There is no penalty to a nonprofit that does not send acknowledgements. Of course, if a donor asks you for documentation, you should provide it.

While it is not required, thanking your donors in writing is good manners! Virtually every non-profit sends thank you letters in some capacity, and most donors will expect to receive a communication that acknowledges their gift and expresses gratitude.  Additionally these donor letters are an excellent way to reassure donors that your agency’s accounting and financial compliance is solid, building their confidence and trust in your organization.

Does it have to be a letter?

According to the IRS, a written communication can be provided as a simple receipt, a letter, or an email.

What does the letter have to include?

To meet the IRS requirements for cash contributions, the acknowledgment must include the name of the organization, the amount of the contribution, and a statement that “no goods or services were provided by the organization in return for the contribution.”

Many organizations include their mission statement or a brief description of their work in the body of the letter. While it is not required, many organizations include a statement that they are a 501(c)(3) and may include their EIN. You will often see the phrase, “Contributions are tax-deductible to the extent allowed by law.”

There are other requirements for noncash contributions, such as property. If you are dealing with noncash contributions, it’s a good idea to consult your attorney or a qualified tax professional to ensure you are meeting all necessary requirements.

What if the donor did receive goods or services?

If the donor DID receive goods or services, then those must be described and given a good faith estimated value. However, if they just received a small gift with the organization’s logo on it, that is generally considered “insubstantial” and does not need to be described.

Do tax letters have to go out by January 31?

No, but that’s the common practice. The IRS says a “timely” written communication is one that the donor receives before they file their taxes for the year when the gift was made. It is customary to send them out by January 31^st. That’s not an IRS deadline but it may be an expectation for your donors.

We send thank you letters year round, do we need to re-send them in January ?

If you are sending acknowledgements that meet the IRS standards throughout the year as you receive gifts, you do not have to send them again in January, although you might choose to as a way to engage and thank your donors. Many organizations will send a simple thank you letter when they receive a gift, and a more formal tax acknowledgment in January.

What about Donor Advised Funds?

There is no requirement or expectation to send a tax acknowledgement to a donor who gives through a Donor Advised Fund (DAF). In fact, the charity should NOT send them an acknowledgement because the donor received the tax benefit when they gave to the DAF, not when the DAF made a grant to the charity.

There is no requirement to provide documentation to the DAF organization. You can and should certainly thank the donor for recommending the grant from the DAF.