Churches keep track of charitable contributions made throughout the year for tax and accounting purposes. Additionally, these records allow parishioners to use their charitable giving for tax write-offs. If you're preparing church contribution statements, it's important to know what to include. Take a look at some tips for making church contribution statements as well as how parishioners will handle contributions on their taxes.
Basics of Church Contribution Statements
Here's a rundown of the key details needed for a 2020 church contribution statement:
- The church's name, address and telephone number.
- The "calendar year" time period for the statement.
- The name of the contributor.
- The address of the contributor.
- The total dollar amount of contributions received from the contributor during the time period on the statement.
Read More: Do Churches Need to File Tax Returns?
It's also important to confirm the validity of donations given by stating that the contributor did not receive anything in exchange for the contribution that was made. If a person purchased something from a church, that does not count as a deductible charitable donation. Lastly, you might want to include a short "thank you" sentence letting the contributor know that the church appreciates the donated funds.
Changes to 2020 Taxes for Congregants
For tax season 2021, you can't necessarily rely on the same strategy for handling charitable contributions that you did last year. The CARES Act has totally changed deductions for charitable contributions for your 2020 taxes. The good news is that the updates are all favorable for people who were generous during 2020. Let's do a rundown of the big changes you need to know about when making tax statements for church contributions:
- The IRS has introduced a new tax provision that allows taxpayers to deduct up to $300 in donations given to qualifying charities during 2020.
- This applies to all cash donations of up to $300 made before Dec. 31, 2020. That includes churches.
- Taxpayers who take the standard deduction for their 2020 taxes when filing in 2021 can take advantage of this newly introduced above-the-line deduction.
- When taxpayers take this deduction, it reduces their adjusted gross income (AGI) and taxable income. That means tax savings for many people.
Taxes changes that went into effect back in 2018 shifted more taxpayers toward taking the standard deduction instead of itemizing their deductions. The IRS reports that nine out of 10 people now take the standard deduction when filing their taxes. As a result, many people who had previously relied on charitable deductions to reduce taxable income no longer had any way to take advantage of charitable deductions. Only taxpayers who claimed itemized deductions still saw tax benefits from charitable giving, but the CARES Act has restored the tax incentive to give to organizations.
Read More: Tax Deadlines in 2021 for 2020 Tax Year
For taxpayers who itemize their deductions, the CARES Act provides some extra benefits. For 2020, the limit of 60 percent of your AGI for charitable contributions is being waived. Taxpayers can now deduct 100 percent. Any cash donations made over the limit can be carried over for five years.
Tips for Claiming Charitable Deductions
When claiming charitable deductions for your 2020 taxes, it's important to ensure that you have records of your giving. Keep any receipts or acknowledgment letters that come from the church you've given a donation to during 2020. If you haven't received documentation of your giving, you can also retain a credit card receipt or canceled check as proof of giving.
What About Businesses That Give to Churches?
If your business gave to a church in 2020, you can deduct more than you did for 2019. The CARES Act raises your annual deduction limit for charitable giving from 10 percent to 25 percent of your company's taxable income. This has the potential to lower your company's tax obligation for 2020.
Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.