An in-kind donation refers to charitable contributions in the form of goods, services, time, and expertise, instead of cash. Learn more about this alternative form of giving and how it can help your nonprofit organization reach its goals. This guide will teach you about in kind contributions, issuing donation receipts, and assessing the impact of in-kind donations on nonprofits.
Table of contents
- What is an in-kind contribution?
- Treat In-Kind Donations As Revenue
- In-Kind Contributions Procedures
- In-Kind donations and the IRS
- How to solicit more gifts
- Bottom Line
The lifeblood for some sustainable nonprofit organizations is securing cash donations, but gifts from donors come in many forms. If your nonprofit receives in-kind contributions, it is important to understand its value and how it impacts your nonprofit’s finances.
What is an in-kind contribution?
An in-kind donation is a type of contribution made to a nonprofit organization that does not involve cash. Instead, the donation is made in the form of goods or services, and is recorded with a monetary value equivalent to the fair market price that one would pay for those goods or services. These types of donations often come from individuals, board members, companies, and organizations. When donors provide goods, services or time to a nonprofit organization, they are directly assisting the organization.
Gifts-in-kind or a gift in kind donation include:
- Donor donates food to a local food bank, and they distribute the items to people who need them.
- A volunteer at an animal shelter can use your time there.
- A social worker who helps people with mental health needs might use your expertise.
- Tangible items such as: computer hardware and software, office furniture, medical supplies, and food.
- Intangible items such as: securities, copyrights, and patents
- Board members providing pro bono professional in kind services
- Discounted or free use of office, meeting space, administrative services
In-kind contributions can be valuable if donated items are integral to your nonprofit organization’s mission, such as providing clothing for people experiencing homelessness, or food for a food pantry. Professional in kind services normally paid for include legal or accounting work. They can help support the needs of your organization in a variety of ways and is a great way to reduce costs associated with your nonprofit.
How In Kind Donations Benefit Causes
During disasters and other humanitarian crises, gifts in kind can help with immediate relief operations, as they are often more cost effective than giving money to buy the goods. Gifts in kind can be an important component of a larger strategy, aiding longer-term development in distressed areas.
Global Hand’s research shows that 94% of all gifts in kind align with the recipient’s needs, and 81% of them have appropriate quality. In a recent survey of in-kind donors, 85% of them stated that they made in-kind donations because they believed it would make a difference to the recipient, and 76% said that they would prefer to give something useful. In-kind donations also offer the benefit of being more cost-effective than cash donations. The average cost of a gift-in-kind donation is approximately half that of a cash donation. Moreover, distributing in-kind donations to remote areas is generally more manageable than cash donations.
What is not a qualifying in kind donation?
Some goods and services used by a nonprofit organization may not qualify as in-kind contributions. For example, a nonprofit may not accept the following:
- Items designated for another entity
- Gifts for a specific purpose
What are the benefits of in-donations for nonprofits?
- Helps nonprofit save on operating costs. It provide access to goods and services that the nonprofit may not be able to afford otherwise. Additionally, in-kind donations can help to build capacity within the organization by providing supporters with an easy way to give back.
- Can be used attract and retain employees. These donations can be less expensive than corporate giving or event sponsorship, and can be a great way to receive support from businesses, individuals, or venues.
- Helps nonprofit build relationships with donors. First, it allows the nonprofit to demonstrate to the donor how their donation will be used to further the nonprofit’s mission. Second, it builds trust between the donor and the nonprofit as the donor can see first-hand how their donation is being used. Third, it keeps the donor engaged with the nonprofit as they see their donation being put to use. Finally, it saves money for the nonprofit as they do not have to purchase these items themselves.
- Helps nonprofits expand their reach. They can also be used for fundraising: as prizes in raffles, auctions, swag bags and fundraising incentives. Organizations like thrift stores, community closets, food pantries and housing organizations rely on in-kind donations as a significant part of their operations.
- Helps nonprofits improve their impact. They are a good way for donors to give money when it’s difficult to give cash, and they know the immediate impact of their donation. Nonprofits can use in-kind donations without waiting for goods or services to be approved which is helpful when trying to better allocate limited funds.
Treat In-Kind Donations As Revenue
Nonprofits must record and report in-kind donations properly in compliance with FASB, state laws, and the requirements of lenders, grantors, and other key stakeholders. Recent GAAP changes dictate nonprofits must transparently include gifts-in-kind and other non-cash contributions in their financial statements. Recording these in-kind donations helps management measure the community’s contribution. It also calculates the value of goods or services in lieu on cash gifts. These steps ensure compliance with federal and state laws and prevent deceptive practices, such as inflating numbers or concealing administrative costs.
Record these goods and in kind services in your financial records as both revenue and expenses.
What does in-kind revenue mean?
- Record Revenue using the fair market value of the gift.
- Fair market value is the price that you would pay for the goods or services, if you had to pay for the items.
- When recording the in-kind contribution, the offset to the revenue amount would be the corresponding value as an expense of in-kind good or services.
- Record Tangible property value as an asset, such as stocks, equipment, building or land.
When reviewing financial statements and planning for the future consider value and cost. Above all, if those contributions, or equivalent expenses are necessary to fulfill your mission. For example, if an accountant donated his services to prepare your annual IRS 990 and the value of that service is $1,000, you must budget that cost in the next fiscal year, in case you have to pay an accountant and not rely on an in-kind contribution.
This holds true for donated goods received that are part of your mission, such as food donated for your community kitchen. For example, your nonprofit receives $25,000 in donated food. You record this expense in your budget. This identifies the resources needed for the community kitchen program to be sustainable.
Challenges of Valuing and Tracking In Kind Donations
Accepting in kind donations can be difficult to track and value because they are not always financial contributions. It can be in the form of tangible assets, such as furniture or equipment, or services that meet GAAP criteria, such as accounting or legal services. In order to track and value these contributions, nonprofits should refer to rules and regulations and include information about the donation, the donor, and the fair market value in their records.
They are valued at the “fair market value” which is the resale value of the donated item. Fair market value is based on the current resale value of donated items and can be difficult to determine. To value in-kind contributions, your organization should determine a fair value and track the number of hours the service is provided. If you’re already tracking the value, completing a Form 990 much easier.
In-Kind Contributions Procedures
It is important when receiving in-kind contributions that you acknowledge the donation by providing the proper documentation, or gift acceptance receipt to the donor.
- Create a policy related to donor acknowledgement.
- Create an in-kind contribution form to standardize the process of recording, reporting and acknowledging gifts.
- tax ID number of the organization
- detailed description of the gift
- date gift received
- statement that no substantial goods or services were received in exchange for the donation
- donor’s contact information
- estimated fair market value of the gift
- calculation of value
How do you write a thank you letter for an in-kind gift?
Write a thank you letter, or donor acknowledgement letter to the individual or organization who made the donation. It’s a good idea to mention what they donated, and how it will help your cause.
Donor Acknowledgement letter example
Include the following in gift acceptance letters:
- tax ID number
- amount and
- how the donation will be used
For example, “Your generous donation of $150 will assist the purchase of new soccer balls for children in need.”
What is an in-kind contributions form?
An in-kind contribution form is a document that the donor fills out to tell what they are donating and how much it costs. All types of donations, whether cash gift or items like clothing, furniture and cars, require the donor to fill out an in-kind contribution form.
The process of donating is straightforward: donors simply ask for a donation form at their local Salvation Army or other charitable organization and fill it out. The form should be filled in completely, accurately and truthfully before being handed over to the person who will process the donation.
In-Kind donations and the IRS
The IRS considers in-kind donations to be a contribution, and the value of the donation is generally considered as its market value. The IRS allows you to deduct the fair market value of property donated. Only donations to registered 501(c)(3) nonprofits are eligible for a deduction. Expenses incurred by providing service are also tax deductible.
Are in kind gifts tax deductible?
In kind donations made to charities are considered tax-exempt because they are given to nonprofits designated as charities. It is interesting to note, any gifts over $14,000 are consider taxable, but the nonprofit is not required to pay a tax. However, the giver of the donation is required to pay what is known as a gift tax.
How much of an in-kind contribution is tax deductible?
In-kind contributions are not tax deductible as a charitable contribution unless they meet certain requirements. A donor can deduct an in-kind donation as a charitable contribution. In order to do this, the donor must receive a written acknowledgement from the nonprofit to substantiate the gift. This acknowledgement does not assign a dollar amount to the donation. donors can deduct 50% of their contribution from their taxable income.
To illustrate, if you donate a computer that cost $X to make and is sold for $Y, you may claim $X in your deductions. Tax deduction is only if the fair market value of property is less than cost.
How to calculate the value of an in-kind gift.
This is calculated by subtracting what it would have cost to buy or produce the item new from its fair market price. If you donate clothing or household items which are not in good condition, the IRS may reduce their value to what you could sell them for.
If services are provided, you may want to check the stores you would have bought them at, and ask for their hourly rate or what they would have charged a paid client for the job they did for you.
How to solicit more gifts
To promote charitable gifts, reach out to businesses and individuals in the community. Create a wish list of needed items and share it on social media, email, and newsletters. Write letters to local businesses to discuss partnering. After contacting donors about donating items, follow up with a phone call and express gratitude. Promote donations by mentioning the donor’s name and highlighting the impact of the contribution. Nonprofits rely on these donations and should share them frequently with donors and audiences.
Research shows in-kind gifts are easier to solicit than cash donations. To increase in-kind giving, nonprofits must identify their needs, develop a gift acceptance policy, ask their stakeholders, and then ask their wider community. For example, the National Council of Nonprofits offers resources on crafting a gift acceptance policy. Nonprofits can also ask their board members, staff, volunteers, and local businesses for in-kind donations, as well as companies with corporate giving or sponsorship programs. Through such research and outreach, organizations can increase their in-kind donations and help further their mission.
Nonprofit boards are an excellent way to tap into in kind gifts. Based on research conducted by the Taproot Foundation at and BoardSource, about 2/3 of the resources generated were pro bono and in-kind.
Finally, you must evaluate the impact of receiving in-kind contributions. It is not worth it to accept in-kind goods from donors if the goods cannot be used to further your mission.
To benefit an organization, in-kind donations should be used correctly. Before accepting any donation, ensure it aligns with your organization’s mission and values and assess its impact. Create a gift acceptance policy and share it with donors, explaining the appropriate types of gifts and thresholds for acceptance. If a donation does not significantly impact your mission, it is not worth accepting.
What is an in-kind contribution?
An in-kind contribution refers to charitable contributions that are made in the form of goods, services, time, and expertise, instead of cash.
What doesn’t qualify as an in-kind donation?
Items that are designated for another entity or gifts that are given for a specific purpose do not qualify as in-kind donations.
What are the advantages of in-kind donations for nonprofits?
In-kind donations help nonprofits save on operating costs, provide access to goods and services they may not be able to afford otherwise, attract and retain employees, build relationships with donors, and expand their reach.
What does the term ‘in-kind revenue’ mean?
In-kind revenue refers to the recording of revenue using the fair market value of the donated goods or services.
How can one write a thank you letter for an in-kind gift?
A thank you letter for an in-kind gift should acknowledge the donation, mention what was donated, and explain how it will help the cause.
Are in-kind gifts tax-deductible?
Yes, in-kind gifts can be tax deductible if they meet certain requirements. Donors can deduct the fair market value of the donated property or services.
How much of an in-kind contribution is tax deductible?
Donors can deduct 50% of the fair market value of their in-kind contribution from their taxable income.
How is the value of an in-kind gift calculated?
The value of an in-kind gift is determined by its fair market value, which is the price that the property would sell for on the open market.
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