Prepare for sending end-of-year letters to donors for tax season

Now is the time to start thinking about what information you need for your End of Year letters for tax season.  Start with a few simple decisions and complete your data entry for 2015 in order for the process to go smoothly. Questions to answer are

• Will you send out letters to all donors, just to donors who will be required by the IRS to have written proof of their donations, or skip sending them altogether?
• Do you want to include a fundraising appeal with the tax summary letter? 

What is a tax summary letter?

Tax Summary letters, often called End of Year letters, give donors information on what they have donated to your organization that year. These statements differ from the holiday appeal, in that they are sent after the holidays. Their primary intention is to give information to the donor for taxes; however it is not uncommon to combine them with another appeal.

Who are you required to send letters to?

Most organizations that send out Tax Summary letters do so to all donors, regardless of the amount that they donated that year.

However, there are two instances when the tax information will be particularly helpful to your donor. This is when the donor has contributed $250 or more in a single donation, or when the donor has received goods or services from your organization in exchange for a single payment of more than $75.

These are the two general rules as stated by The United States Internal Revenue Service (IRS):

• a donor is responsible for obtaining a written acknowledgment from a charity for any single contribution of $250 or more before the donor can claim a charitable contribution on his/her federal income tax return.
• a charitable organization is required to provide a written disclosure to a donor who receives goods or services in exchange for a single payment in excess of $75.

What needs to be included in the letter?

For tax purposes, the IRS suggests that the following information be included in the letter:

1. amount of money donor contributed
2. description (but not the value) of non-monetary contribution
3. statement that no goods or services were provided by the organization in return for the contribution, if that was the case
4. description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution
5. statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits
   (for clarification see IRS publication 1771: http://www.irs.gov/pub/irs-pdf/p1771.pdf).

It is not necessary to include either the donor’s social security number or tax identification number on the acknowledgment. The IRS has no requirements for what form the tax summary needs to be in. Each donation may be listed as a single entry, or a summary of the entire year's giving may be used. Letters, postcards, or computer-generated forms are all acceptable to the IRS and they can be sent either by regular mail or by email addressed to the donor.

When do you need to send the letters?

To be of the greatest service, send these letters no later than January 31 of the year following the donation. For the written acknowledgment to be considered valid by the IRS, a donor must receive the acknowledgment by the date on which the donor actually files his or her tax return for the year of the contribution.

An effective time to make a fundraising appeal

Besides being a service for your donors, sending Tax Summary letters also speaks well for you, and helps reinforce the image of a well-organized, responsive group in the donor's mind. It reminds donors of who you are and that they donated to your organization... and might want to donate again!

If you take the opportunity to restate your case and remind donors of why they donated, they might well be motivated to donate again. After the rush of fundraising during the holidays, quiet falls at the end of the year. When your letter arrives in January, often people will respond. You can more than pay for your mailing in this way.

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