Giving #1– Giving Basics.
Churches depend on the generous donations by their members to operate. These donations are tax deductible when they are given “to and for the use” of a “qualified” tax-exempt organization AND are under the “control of the organization” to accomplish its exempt purpose. Just an aside, a church is not required to be a formal 501(c)3 organization. Churches are tax-exempt.
Three Classifications of Monetary Donations
- Gifts without donor restrictions or designations. For example, general tithes and offerings are unrestricted gifts. These are generally tax-deductible to the donor.
- Gifts with donor restrictions or designations. Occasionally donors will place restrictions on the use of their gift. These gifts are generally tax-deductible as long as the ultimate control of the use of the funds belongs to church leadership. (Our next blog will give you more details on designated/restricted donations.)
- Gifts to an individual. If the giver specifies a person by name or position, then the gift is normally not tax-deductible AND is considered taxable income to the recipient. However, consider this example:
- When there is a special offering for the ministry staff of three and the church leadership then decide as to how the money is distributed. The donor may take a tax deduction for this gift.
- Tax changes effective 1/1/2020 make the tax deductibility of gifts less important to the majority of taxpayers.
Timing of Monetary Donations
A charity donation is considered made on the date of delivery. And it is this date that determines the tax year in which the gift is deductible.
- Checks. The postmark date on the envelope is the date used to record the donation except for:
- Postdated Checks. Date of mailing makes no difference if the check is postulated.
- Checks that Bounce. A check dishonored for insufficient funds is not deemed to be valid at the date mailed.
- Credit Cards. The date the donor authorizes the charge is the effective date for the donation.
- Electronic Funds Transfer/ACH: Donors may instruct their bank by internet, mobile device or phone, and it is deemed deductible as of the date the payment is made by the bank.
- Pledge. A pledge is not deductible until payment of the pledge is made.
- Securities. A contribution of stock is completed when the properly endorsed stock certificate is delivered to the charity or their agent. If mailed, the postmark date rule applies.
- Real Estate. This gift is tax deductible on the date the executed deed is delivered to the charity.
Is your church properly recording donations? Do you have the means to keep track of donations via an App or Bookkeeping software? Subscribing to GoodBooks can help simplify this part of your church business.
If you have questions about handling donations, contact GoodBooks today.