Disclaimer: Before implementing any tax-related practices, nonprofits are strongly advised to consult with a qualified tax professional. The following blog post provides a guide to assist in understanding best practices for tracking and acknowledging donations in nonprofit auctions.
Nonprofit auctions are a great way for your nonprofit to expand their fundraising efforts. With the availability of online auction software like AuctionSnap, they’ve become more accessible and efficient.
When it comes to running an auction, many nonprofits are left wondering the best way to track, thank, and record the various donations that are involved. In this article, we will explore tax implications and acknowledgment best practices for your nonprofit auctions.
Should Nonprofits Provide a Tax Letter to Auction Winners?
It is always best practice to thank your donors for any support to your organization.
With a nonprofit auction management system like AuctionSnap you can automatically generate an email or printed receipt for your auction winners during your event. This should be sufficient for them to work with their accountant if they are looking to record it on their taxes.
However, your nonprofit may want to send an additional acknowledgment letter from your CRM system. This provides a more formal thank you for their participation in your event and will recognize their contribution.
Sample Acknowledgement Letter For Auction Item Winners:
We would like to extend our heartfelt gratitude for your generous support of [Nonprofit Organization] through your winning bid at our recent auction. Your contribution helps [briefly mention the cause or impact].
This letter is to confirm that you made a payment of $[Amount] for [Item/Experience] during the auction on [Date]. Please note that according to IRS regulations, the amount paid for auction items in excess of their fair market value may be tax-deductible. As such, we advise consulting with a tax professional for specific guidance on deductibility.
Thank you once again for your invaluable support.
Are Auction Wins Tax Deductible?
While auction wins can be tax-deductible, it’s typically the amount paid in excess of the fair market value of the item that is eligible for deduction. For instance, if an item’s fair market value is $500 and the winning bid is $700, the $200 difference may be considered a charitable donation. Nevertheless, donors should seek professional advice to determine eligibility for tax deductions based on specific circumstances.
Do Nonprofits Have to Provide the Fair Market Value of Auction Items?
According to the IRS website, in order for an individual to claim a charitable contribution deduction for the excess of the purchase price paid, the donor must be able to show that he or she knew that the value of the item was less than the amount paid. Typically a nonprofit would provide a catalog of auction items that includes the fair market value. When cataloging your auction items in AuctionSnap, you have the option to add the fair market value to all of your auction items.
How to Thank Donors for Auction Items Donated
When an individual or organization donates items to be auctioned at your event, your nonprofit should treat them as in-kind donations. You should acknowledge their gift with a customized thank you letter for in-kind donations. The letter should include details of what the in-kind donation was and if any goods or services were exchanged for it. It is up to the donor of the gift to determine the fair market value of the item donated with their accountant. Therefore, you do not need to provide the fair market value of the item donated in the acknowledgment letter.
Sample Acknowledgement Letter For Auction Item Donors:
Thank you so much for your generous donation of [Item/Experience] for our recent auction. Your contribution directly supports our mission to [briefly mention the cause or impact]. No goods or services were provided in exchange for your gift.
Your support plays a significant role in our ability to make a difference. We are immensely grateful for your dedication to our cause.
Thank you for being an integral part of our efforts.
When it comes to acknowledging donors for their participation and contributions to your auctions, it is important to have a customized thank-you process. Your auction management systems like AuctionSnap can provide a necessary receipt to auction winners. However, it is best practice to send a formal acknowledgment letter from your nonprofit CRM. If you use DonorSnap with AuctionSnap you can set up these parameters ahead of time for a streamlined post-event acknowledgement process. Learn more about how AuctionSnap and DonorSnap work together here.