Contributions represent the largest source of income for most charitable organizations. Churches are classified as a charitable organization, or a 501(c)(3) and they are funded almost entirely by contributions. Understanding the rules for contributions and developing procedures to comply with the technical legal rules is important.
A contribution can be defined as an unconditional transfer of cash or other assets. The donor does not receive a benefit in exchange for the item transferred. In accordance with section 170 of the tax code (also see Publication 526 for additional information) and in a excerpt provided by Church and Clergy Tax Guide - 2007 - a charitable contribution generally must satisfy the following 6 requirements:
1. Represented by a gift of cash or property. An individual cannot take an itemized deduction (Form 1040, schedule A) for donated services.
2. The contribution should be claimed in the year in which the contribution was made, (i.e., delivered). One exception is allowed for a check mailed to a charity – deductible in the year the check is mailed and postmarked.
3. The contribution has to be unconditional and of no personal benefit.
4. The contribution should be made to and for the use of a qualified charity.
5. The contribution should be within the allowable legal limit (relates to deductibility for the individual.)
6. The contribution must be properly substantiated, (i.e., verified).
We will talk more about each of these requirements in subsequent posts.
Comments (2)
Designating a purpose is fine, as long as the purpose is under the control and discretion of the Church. These types of purposes are typically an approved project or program of the church. These types of contributions generally relate to missions, benevolence, education or other programs for outreach.
I would encourage your donors to give for a designated project/program, not a designated individual.
The gifts to the pastors are not considered a charitable contribution. These gifts designated to the pastor, are as the term implies, a gift, not a charitable contribution. You were correct in treating them as taxable compensation.
Posted by Becky DaVee | November 16, 2007 10:29 AM
Posted on November 16, 2007 10:29
re: #3
Does this mean that if someone designates the purpose for the funds that it is not a contribution?
I.e., we have some folks who give money to a particular missionary or purpose. Also, during Pastor's Appreciation Month (October in the U.S.), some church members gave money specifically to certain pastors as a gift. That money counts as income to those pastors, but does the specific designation affect whether it is an allowed contribution. (The pastors did not know who the money was from)
Posted by Tom | November 9, 2007 4:03 PM
Posted on November 9, 2007 16:03