In concluding our series on responding to natural disasters, I want to spend time addressing a topic that relates to all churches and ministries—donations.
In response to Hurricanes Harvey, Irma, and Maria, many churches and ministries collected items such as nonperishable food, water, and clothes to send to the areas that were most devastated by the storms. In fact, many churches and ministries are still collecting such items to send to these areas.
While I applaud all efforts to collect items for victims of natural disasters, pastors and church leaders are calling us asking, “How do we properly manage these donations?”
I will provide you with five steps to help you easily manage the donations your church or ministry receives, but before doing so, it is important to understand your responsibilities with donations.
Understanding your responsibilities with donations
As the recipient of a donation (also known as a “donee organization”), your church or ministry has certain basic responsibilities to properly manage donations. The first requirement may seem obvious, but it is well worth mentioning.
Operating in compliance with nonprofit tax law is the best way to ensure that a donor’s donation can indeed be tax deductible. Maintaining tax law compliance ensures that your church or ministry remains a qualified organization that may receive tax-deductible donations.
There are some additional donee responsibilities that your church or ministry should know in order to remain in compliance with nonprofit tax law.
These additional responsibilities include the following:
Ensuring donations are used to help further the tax-exempt purpose of your church or ministry;
Providing a giving receipt to your donors. (For more on giving receipts click here.);
Filing IRS Form 990 annually. (**Churches are exempt from this requirement.**); and
Properly understanding the difference between restricted and designated donations. (For more information on restricted and designated donations click here.)
How do donors receive a tax deduction for noncash donations?
In order for donors to claim tax deductions for the donations that they give, donors must properly “substantiate” their giving. The word “substantiate” is a term meaning to provide evidence to support or prove the truth.
Donors must be able to “prove” the charitable deductions that they take on their taxes. This is important for churches because the giving receipt you provide to your donors can affect the tax deductibility of your donors’ contributions.
Therefore, when it comes to noncash donations, it is important that you become familiar with the substantiation requirements for both the church and the donor.
For more information on substantiation responsibilities for both your church and donors, you will want to read “IRS Denies a $65 Million Charitable Tax Deduction.”
How to easily manage donations your ministry receives
Step 1: Create a team to manage donor contributions.
The first step in properly managing the donations your ministry receives is to create a team that manages these donations. The donation management team can be a department with its own volunteers, or it can be comprised of volunteers and staff from various departments of your church or ministry.
Step 2: Establish policies and procedures surrounding donations.
Having a well-defined procedure for receiving both cash and noncash donations given to your church or ministry will provide security for the donors, security for your organization, and help you to be wise and prudent stewards of the funds you receive.
Good procedures also ensure protection and accuracy for the count of the donations.
In our Documents Suite™, we provide a Donated Property Policy, Tithe & Offering Collection Policy, and a Tithe & Offering Counting Policy.
Step 3: Document donations in a donor database.
For cash, check, and envelope donations, a donation database can be used to easily facilitate keeping track of donations received throughout the year. The donor information database should allow you to easily track the name, contact information, and giving amounts of donors.
We offer a donor management database called Kingdom Steward™. You can purchase this product alone or receive it free with our Bookkeeping Service.
Step 4: Distribute giving receipts and donor letters.
A general rule of thumb is to mail the giving receipts to your donors by January 31st so that donors have the receipts in time to file their personal income tax returns by the April 15th deadline. You may distribute giving receipts to your donors by mail or email.
Step 5: Create a process for managing refund requests, insufficient funds, and notifying donors of issues with designated donations.
You may encounter situations when donors request a refund of their donations for one reason or another. In these situations, guidelines should be set forth to ensure the protection and proper management of your organization’s funds while still being sensitive to the needs of the donor.
It is recommended that each church adopt and implement a Tithe Refund Request Policy. We provide this policy in our Documents Suite™.
A quick note about managing assets
One of the requirements of a tax-exempt organization is that its assets are always used for a charitable purpose. If a public charity dissolves, its assets should be donated to another charity or to a governmental unit.
If your church or ministry must sell an asset for financial reasons, the asset should be sold at fair market value or auctioned at the organization’s property (if it owns property).
When you want to do more
Some of you reading this blog are probably wondering how you are able to provide more help and assistance to those impacted by natural disasters. Yes, collecting items and sending teams of people to help is good. However, there is something on the inside of you calling you to do more, and you do not know where to begin.
What if you were to create a separate organization with the purpose of serving in areas that have been affected by natural disasters? What might that look like to you?
While you work on the vision and mission, we can help quickly with the logistics of getting started.