How to Handle Multiple Donations in One Offering

By Tracey Perez

As the counting team for St. James Baptist Church were counting Sunday’s offering, they came across several different types of donations with different stipulations.

One donation was given with a note that required that be applied to the upcoming missions trip the church was planning, or to be returned to the donor. Another donation given with the instructions saying that the donor would love for it to go toward new stained glass windows, but that the church could use it wherever it deemed the most effective.

Finally, there were several donations given to support a local food bank that the church was partnering with.

Not sure what to do, the offering counters contacted the church treasurer. It was there that they were taught the different classifications of donations.

Understanding the different types of donations

In short, there are 2 different classifications for donations.

Understanding the difference between these types of donations is important to how your church handles these donations. This well help determine how you will classify your donor’s donations on the charitable statement you issue at the end of each year.

The first type of donation is known as a designated donation.

A designated donation is when a donor gives money to your church and notes a desired intent for his/her donation.

These are donations given with a suggested use from the donor, however, the donor relinquishes control of the donation to the church for the church to use as it sees fit. In this instance, the donation is a tax-deductible contribution.

An example of a designated donation is when a donor fills out an offering envelope to assign the donation to a specific fund. However, when your church has proper wording on your envelopes, you can use that money where the church sees fit.

Of course the church can take into consideration what the donor selected and use it for that purpose, but ultimately the church decides how to use it.

The second type of donation is know as a restricted donation.

A restricted donation is when a donor gives a donation specifying the intended use of the donation.

In other words, a donor requires that his/her donation must be used for a specific purpose and for that specific purpose only. Restricted donations are not tax-deductible to the donor because the nonprofit (i.e., your church) does not have control over the use of the funds.

What the IRS has to say about donations

An excerpt from IRS PLR-200250029 states:

“The organization must have control and discretion over the contribution, unfettered by a commitment or understanding that the contribution would benefit a designated individual. Rev. Rul. 62-113. The donor’s intent must be to benefit the organization and not the individual recipient. Rev. Rul. 68-484.”

In short, this means the donor has to "release control" of the donation, giving the church the authority to use the donation as they see fit, in order to receive a tax deduction.

If a donor is adamant about how his/her donation is to be used, and insist that the donation cannot be used for another purpose, then that donation is not considered a tax-deductible contribution to the donor.

Helping your donors to understand the difference in donations

It is imperative to help your donors understand that if they do not relinquish control of their donation, then their donation(s) is not tax-deductible.

One way to help your donors understand this fact is by adding language to your offering envelopes, or to your website when donors give online.

Below is some example wording your can use:

“This church is a qualified 501(c)(3) organization. All tithes, offerings, or donations of any kind are deductible under IRC section 170(c)(2). Unless otherwise noted and in accordance with IRS regulation, you agree to relinquish control of the donated funds to the discretion of this church.”

Additionally, if any donor restricts his/her donation(s) to a specific use, it is best practice to let them know that it would be considered a restricted donation and that their donation is no longer tax-deductible.

Furthermore, if your church receives a donation for a project that has been completed or terminated, your church has the responsibility of informing the donor and letting them decide:

1. To redirect the donation towards another project or fund.
2. To receive a refund of the donation if they decide they do not want to redirect the fund.

How to best track donations given to your church

Since there two different types of donations (i.e., designated and restricted), it is very important to make sure that throughout the year you are properly tracking your donations.

This will help you to more easily distribute your end-of-year giving statements to your church members and/or donors.

We have a software program called Kingdom Steward that can help you with designating your funds, and even help you to ensure that the donations you received are clearly separated between tax-deductible and non-tax-deductible donations.

Additionally, while completing your financial reports for bookkeeping/accounting purposes, you want to be able to properly reflect all of your income with the correct designation.

Properly maintaining your church’s financial books will help you be transparent with your donor’s money once you receive it.

If you haven't started keeping your finances in order, you will want to start as soon as possible.

Bookkeeping helps provide proof to donors and lenders that you know how to efficiently manage your church’s money and are not misappropriating funds.

Being aware of the different types of donations your church can receive, and making sure those donations are accurately tracked, will help you and your church to remain transparent with your donors and good stewards with what God has blessed you with.

Is your “house” in order?

Good stewardship requires hard work and dedication.

There are times when it is, or will be easy, to say, “I’ll get to that later.” But the truth is that in the busyness of life and ministry, there are times when “later” never comes.

This is where we can help you and your church.

Our Bookkeeping Service provides you with monthly financial reports that will help you better understand your church’s financial state and health.

If you haven’t yet implemented a specific and intentional bookkeeping plan for your church, or if you’re overwhelmed with the current bookkeeping/accounting system you have in place, then give us a call at 877-494-4655 for more information or simply click on the link below.

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