Year End Gift Cutoff
December is a busy month for most nonprofits. Various sources place the percentage of annual gifts made in December at more or less 30%. But which gifts count for December? Regardless of your organization’s fiscal year, all organizations must deal with the year end gift cutoff of December 31 for tax purposes.
The IRS requires donors who make a single charitable gift of $250 or more to obtain a receipt from the organization before deducting the gift for federal income tax purposes.
The IRS also requires charitable organizations to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75. These types of payments commonly arise in connection with special events. The special event admission fee paid by the donor may be partly a contribution and partly a payment for value received such as food, drinks and entertainment.
In any event, the organization must provide gift receipts with certain basic information to donors. You can find a useful overview of requirements in IRS Publication 1771, Charitable Contributions: Substantiation and Disclosure Requirements.
One necessary piece of information, of course, is the date of the gift. Donors need a gift receipt that complies with the IRS’s date rules. The IRS’s basic rule per IRS Publication 526 (section entitled When To Deduct) is that a gift must be delivered to the charity by December 31 for it to count as a contribution for that year. The date of delivery depends on how the gift was made and delivered. Here is a quick summary of year end cutoff for various gift delivery methods:
- In Person – Physically received by the organization by Dec. 31
- U.S. Postal Service – Postmarked by Dec. 31
- Private Delivery Service such as FedEx or UPS – Physically received by the organization by Dec. 31
- Credit Card — “Fully processed,” i.e., approved by the credit card issuer by Dec. 31
Here is an excellent summary of gift date rules from Adler & Colvin entitled Determining the Date of a Charitable Gift.
For accounting purposes, you can rely, for the most part, on the tax rules. Normally for gifts received by cash or check, you record the gift in the accounting system using the date received as a matter of convenience and practicality. However, at year end you may receive checks in January that were dated in December and that the U.S. Postal Service postmarked in December. You should record these gifts in QuickBooks using a sales receipt dated Dec. 31. For accounting purposes the donor signified intent to make a gift based on the date of the check and the date the check was mailed, therefore the income belongs in December. The cash will be recorded as “undeposited funds,” which is appropriate since the donor gave up control of the funds in December.
Though we have never run into this situation in practice, we would treat a gift mailed by a private delivery service in December the same way as a December gift for accounting purposes. However, the IRS would consider it a January gift.
Grants and pledges pose more year end cutoff questions. If you have a letter from a foundation dated in December stating a grant award has been made, but you do not receive the cash until January, record a receivable for the grant amount dated as of the date of the letter. By recording a grant receivable dated as per the award letter, you are also recording the grant income in that month.
Similarly, if you have a signed pledge from a donor dated in December, record a pledge receivable in December. A donor cannot deduct a pledge, only gifts actually made in cash or in-kind tangible goods. Also as made clear in IRS Publication 526 – Charitable Contributions, a donor cannot ever deduct the value of services provided.
The date of the gift sounds like it should be straightforward matter. But as you can see, determining the correct date can be tricky. Know the rules for common gift dates to make your year-end cutoff for accounting and donor acknowledgements less taxing!