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[ASK AN EXPERT] In Which Year Are Gifts Made On Or Before December 31, But Received In January, Counted?
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Updated - 09/10/2024
Our Ask An Expert series features real questions answered by Claire Axelrad, J.D., CFRE, our very own Fundraising Coach, also known as Charity Clairity.
Today’s question come from a nonprofit employee who want advice on which year to count gifts that are made on or before December 31, but not received until January:
Dear Charity Clairity,
Our fiscal year ends December 31st, which this year falls on a Saturday. The last time this happened, I logged all gifts received on that Saturday in our CRM and used our Remote Check Deposit machine to deposit the checks electronically on the same day.
Our auditors later told us the gifts should have been recorded as pledges, with the payment showing as being applied in the new year. They also wanted us to do this with online donations paid by credit card, as there is a delay of a few days before the money reaches our bank account.
From the donor’s perspective, they have lost control of the gift when it leaves their possession. If I send them a letter in the new year stating their gift was received in 2023 instead of 2022, that may impact their tax filing, especially if it is a larger gift. From our perspective, we have the donation in hand on Dec. 31st, so it should be logged in the year it was received.
I’m reaching out now in the hopes that we can figure out the right course of action prior to year-end.— In a Dilemma
Dear In a Dilemma,
You are right to call this out as a matter of perspective, and there are three in particular I’d like to highlight.
- Donor perspective (for tax deduction purposes)
- Fundraising data management perspective (year in which the gift was generated).
- Finance office perspective (year in which the gifts are logged as receivables.
Donor Perspective
The donor cares about when they can claim a deduction. As a general rule, this is when the contribution is made; not received. You are correct that in the simplest case, where a donor hands a check to charity, that is the date of the gift. It doesn’t matter when you deposit the check or when the check clears (though this rule assumes it clears “in due course.”) This being said, there are exceptions. Let’s look at some different scenarios.
- The donor mails the check via the USPS. Since, as you point out, the donor can’t get the check back once the piece of mail is put under the control of the Post Office, delivery and donation occurs on the date the envelope is placed in the mail. Generally, this is determined by the postmark. This is true even if the check isn’t deposited or cashed until January.
- The donor sends the check via alternative private delivery service like UPS or FedEx. Since these are deemed to be acting as “agents” of the sender, and the sender can presumably cancel their instructions, the gift is not deemed delivered and donated until the check arrives at the charity.
- The donor completes a debit or credit card gift on or before December 31st. Once completed, the donor cannot cancel this; hence the donation is deemed to have been made in the calendar year of the transaction.
- The donor completes a gift via text. These are deductible in the year the donor sends the text message if the contribution is charged to their telephone or wireless account.
- The donor makes a gift of stock. This is trickier, and depends on whether the donor delivers certificates or simply instructs their broker to make the transfer. In both cases, it is not enough for the donor to simply agree to transfer stock or to notify their broker they wish to do so. For the gift to be deemed completed, the certificate must be delivered into the charity’s possession (either endorsed by the donor on the back, or accompanied by a signed stock power), or the corporate records of the stock issuer must be changed to reflect the ownership transfer. If the donor mails the stock certificate and stock power, the gift is deemed completed on (1) the date of mailing via the USPS, or (2) the date of receipt by a charity representative if sent via alternative carrier.
Fundraising Data Management Perspective
You care about what you can count towards your annual fundraising goal. Just as for donors, contributions must be made by December 31st, not received. At least this is my understanding as a fundraising professional, not an accounting or tax professional.
Because you don’t want to represent to the donor that you know things you may not know, one wise course of action is to simply leave it to the donor and their tax preparer to substantiate a tax deduction. Charities have no requirement to substantiate when the gift (or pledge) was made; merely when the money was received. Here are some ways I’ve thanked donors for gifts made and/or received during the last weeks of the ebbing year and the first week of the new year:
- Thank you for your $100 gift postmarked December 31st and received January 3rd.
- Thank you for your gift of 12 shares of XYZ stock received in our brokerage account on [date].
- Thank you for your $100 check dated December 31st and received January 3rd.
You do not want to get into the business of advising the donor as to the date of the gift for deduction or valuation purposes.
Finance Office Perspective
It is likely your finance office will need to log the gifts as receivables in the year they actually become available to you in your bank account. They are governed by FASB accounting standards. Until the money is received, accounting will consider the “promise to give” as an expense or debit which will be “forgiven” when the money hits your books. This is one of the many reasons finance and development ledgers don’t always neatly line up. It’s the type of discrepancy you can explain in your budgets (and spreadsheets reviewed at board meetings) using footnotes and variance reports.
Wishing you much year-end fundraising success,
— Charity Clairity
Please consult your own professional advisors! More information on the tax deductibility of charitable gifts can be found in IRS Publication 526.
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