Churches keep track of charitable church 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 letters as well as how parishioners will apply church contributions on their taxes.
Basics of Church Giving Statements
Here's a rundown of the key details needed for a typical 2021 church year end contribution letter:
- 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 church contribution thank you letter to let the contributor know that the church appreciates the donated funds.
Changes to 2021 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, though some benefits stem from the 2020 tax year.
However, expanded tax benefits now exist to provide individuals and even businesses with more relief if they contribute towards their churches and other charitable organizations. It’s all due to The CARES Act and The Taxpayer Certainty and Disaster Tax Relief Act of 2020.
The good news is that the updates are all favorable for people who were generous during the year. Let's do a rundown of the big changes you need to know about when making tax statements for church contributions:
- The IRS has continued the 2020 tax provision that allows married couples filing jointly to deduct up to $600 in donations given to qualifying charities during 2021. This applies to all cash donations of up to $600 made before Dec. 31, 2021 to qualifying charities – and that includes churches.
- Taxpayers who take the standard deduction for their 2021 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 restored the tax incentive to give to organizations.
Removal of AGI Limitations
For taxpayers who itemize their deductions, the CARES Act provides some extra benefits. For 2021, the limit of 60 percent of your AGI for charitable contributions is being waived. Taxpayers can now deduct up to 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 2021 taxes, it's important to ensure that you have records of your giving. Keep any receipts or church donation letter for tax purposes you've given a donation to during 2021. 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 in the previous years. 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 2021.
- IRS.Gov: Charitable Contributions - Written Acknowledgments
- Free Church Accounting: Handling Contributions
- IRS.Gov: Year-end giving reminder: Special tax deduction helps most people give up to $600 to charity, even if they don’t itemize
- IRS.Gov: IRS joins leading nonprofit groups to highlight special charitable tax benefit available through Dec. 31
- SDFoundation.Org: How CARES Act Extensions Affect Your 2021 Charitable Tax Deductions
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.