How to make tax preparation more convenient for your donors

You can make tax preparation more convenient for your donors by sending them annual statements in January. Annual statements provide your donors with a single document that includes all the information they, or their tax preparer, will need. It’s a nice way to provide your donors with a specific, convenient resource so they don’t have to track down the acknowledgment letters they received from your organization throughout the previous calendar year. And, it’s an additional opportunity to thank them for their support.

It’s important to bear in mind that annual statements are “a grace note, not a requirement,” as fundraising consultant Hugh Montgomery notes. If you choose to provide your donors with annual statements, here are three things to keep in mind:

1. Include details for the appropriate gifts.

When providing donors with an annual statement they can use for the purpose of tax preparation, Montgomery explains the annual statement “should reinforce appreciation for a donor’s support while simultaneously documenting what a donor and their advisors will need from the organization to substantiate charitable gifts for which they might seek an income tax deduction.” This means your annual statement will only include details for financial gifts, which may be eligible for a tax deduction. For this reason, soft credits (such as contributions made via a donor advised fund) should not be included in an annual statement intended to help a donor with their tax preparation.

2. Focus on the calendar year, not your fiscal year.

Your organization may have a fiscal year start date of July 1, but remember that, for tax purposes, your donors need information for the gifts they’ve made during the calendar year.

3. Make sure your annual statements look professional.

The look of your annual gift statements should be consistent with the other communications you send throughout the year. Proofread your template carefully. Include contact information in case your donors, or their tax preparer, have questions and need to reach you.

Conclusion

As long as your organization acknowledges gifts throughout the year, it’s not necessary that you send annual statements every year in January. But doing so can be a nice way to reinforce your appreciation to donors and help make their tax preparation more convenient. If you’re a Little Green Light customer, you can use our annual statement functionality to generate statements for your donors.