Donated Labor or Materials - How to Handle

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Donated Labor

The question is occasionally asked "Can I have a receipt for the work that I have done at the church? I don't want to be paid for it, I just want a tax receipt instead."

The IRS does not allow us to issue donation receipts for donated labor. And this is why. (From IRS Pub 526) 

When tax-deductions are claimed on Form 1040, they reduce taxable income that is being reported to the IRS. If labor is donated, the person's taxable income is already reduced by not having been paid for the service. To issue a tax- deductible receipt for donated labor, would, in essence, allow the taxpayer to double-dip. They would be reducing income that was never earned or included in income to begin with.

If a donor wishes to receive a receipt for work they do for the church, it is recommended that they:

  1. Submit an invoice to the treasurer. This should be arranged, and the amount authorized by the board ahead of time.
  2. Deposit the payment into their bank account.
  3. Write a donation check to the church.

NOTE: This could result in the need to file a 1099 for the work that was done, if it exceeds the reporting threshold over the course of a year. The donor will have to decide if paying taxes on the labor is worth the tax benefits of the donation receipt.

Donated New Materials

Or sometimes the question is "Can I have a receipt for this item that I have purchased for the church? I don't want to be reimbursed for it, I just want a tax receipt instead."

The answer is similar. If church members want to get full tax-deductible credit for items purchased on behalf of the church, it is recommended that they:

  1. Turn in their receipts for full reimbursement
  2. Deposit the reimbursement into their bank account
  3. Write a donation check to the church

A less optimal solution is to:

  1. Start New Offering, with an offering total of $0
  2. Enter an envelope for the donation, filling in the donor's name, donation amount, and the account donated to, as appropriate.
  3. Enter a second envelope to No Name or Anonymous, for the negative of the donation amount, to the same account as the first envelope. The total of the two envelopes should be $0.
  4. Complete the deposit.

Donated Used Materials

Or maybe you're asked "Can I have a receipt for the used items I donated?"

If you are given an article donation, but there is no recent purchase receipt, you may give a letter signed by the treasurer thanking the person for the donation of (description of item or items) to the church. But the church does not assign a monetary value to the donation, and the donation will not appear on year-end receipts.


Click here for more topics related to Fund Handling Legalities

Click here for more topics related to Offering Deposits

Click here for more topics related to Entering Other Transaction Types

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