Q&A #144 – What is the year-end charitable deduction deadline for donations made via credit card?
Question: My 501(c)(3) nonprofit organization receives many online donations around the end of the calendar year via credit card. However, our online donation platform takes several days to disburse the funds the organization’s bank account, and donors may not pay their credit card bill until the new year. In what year can we tell donors that their donation is tax deductible?
Answer: According to Internal Revenue Service guidance, donations made via credit card are eligible for the charitable deduction in the year in which the charge is made on the donor’s credit card, regardless of when the donor pays the credit bill or when the nonprofit ultimately receives the funds. See IRS Revenue Ruling 78-38 and Publication 526.
Some donors who wait until the last minute may face challenging evidentiary issues if their donations do not show up as posted to their credit card account until January due to processing delays, since the IRS has from time to time suggested that donors should be prepared to show the “transaction posting date” on their credit card statements.
However, the specific date that a contribution posts to a donor’s credit card account is not of direct concern to the nonprofit, which must focus on fulfilling its responsibility to issue a timely and accurate acknowledgment letter to the donor (sometimes also called a “tax receipt”) that contains all the required information as summarized on the IRS website and Publication 1771.
Nonprofits have some flexibility in how to approach describing the date of contribution in their acknowledgement letters, but a generally safe and widely recommended approach is to indicate the date the contribution was initiated according to the organization’s online donation platform. The date the nonprofit actually receives disbursement of the funds is not relevant to this particular matter.
Planning Tip – Nonprofit organizations should not assume that the donation confirmation letters or emails that are automatically generated by their online donation platform necessarily contain all the information required to be reflected in their donor acknowledgment letters. Periodically review these auto-generated confirmation letters both to ensure general compliance with the requirements described on the IRS website and Publication 1771 and to determine whether the facts of specific transactions require additional disclosures (such as the presence of a “quid pro quo” element). Do not delay in issuing a follow-up letter or correction to a donor if necessary, and consider providing a year-end summary of donations to donors who contribute multiple times throughout the year.
As a reminder, nonprofits should always be careful to avoid giving tax advice to their donors regarding deductibility in their specific circumstances. While providing generally available information to donors is fine, these statements should be accompanied by a disclaimer that such information is not legal advice and that donors should consult their own tax advisors if they have questions about their personal use of the charitable deduction.
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