Q: We just began accepting credit card donations via a national processing service. We were told that the full amount of each contribution is tax deductible, even the portion that the service takes out for credit card processing fees.
Churches are increasingly accepting credit card donations, providing convenience for donors while raising questions about proper accounting practices. A common concern is whether the full donation amount, including the credit card transaction fees, is tax-deductible. Here’s what you need to know to manage these fees and maintain compliance.
Are Credit Card Fees Tax Deductible?
Yes, the full donation amount—including the portion deducted for credit card transaction fees—is considered tax-deductible for donors. This means your acknowledgment to the donor should reflect the full amount of their gift, even though the church does not receive the total amount after fees are deducted.
How to Record Credit Card Donations
The best practice for recording credit card donations is as follows:
- Record the full donation amount as income.
- Track the credit card processing fee as an operating expense.
For example, if a donor contributes $100 and the processing fee is $3, the church should record $100 in donation income and $3 in expenses. This approach accurately reflects the full donation while accounting for the expense of processing the transaction.
Should Credit Card Fees Be Recorded as Negative Contributions?
It is not advisable to record credit card fees as negative contributions. Doing so could complicate financial reporting and cause confusion during audits. Instead, treat these fees as operational costs necessary for accepting donations. This is similar to other bank service charges incurred by the church.
Tracking Credit Card Fees for Auditing Purposes
To ensure proper financial management and transparency, consider these tips for tracking credit card fees:
- Set up a dedicated expense account for credit card processing fees in your accounting system.
- Review monthly statements from your payment processor to reconcile fees accurately.
- Provide clear documentation of fees and donation amounts during financial audits.
Conclusion
Managing credit card transaction fees for church donations requires careful accounting to ensure accuracy and compliance. By treating these fees as operating expenses and acknowledging the full donation amount for donors, churches can maintain financial transparency and build trust with their supporters.
FAQs About Credit Card Transaction Fees for Church Donations
1. Are credit card fees tax-deductible for donors?
Yes, donors can deduct the full amount of their contribution, even though a portion is used for transaction fees.
2. How should churches record credit card fees?
Churches should record the full donation amount as income and the transaction fees as an operating expense.
3. Is it acceptable to record fees as negative contributions?
No, recording fees as negative contributions is not recommended. It is more appropriate to categorize them as operational costs.
4. How can churches track credit card fees effectively?
Use a separate expense account in your accounting system and reconcile monthly statements to track fees accurately.
For further information on best practices for managing church donations, visit IRS Charities and Nonprofits.
