In-Kind Donations: Everything Your Organization Should Know

Make it obvious that your organization is grateful for any in-kind donations you receive, even if they wouldn’t be your first choice of product or service. This is particularly important for used items that may not be in the best condition but can still be used. When you first start reaching out for in-kind donations, it can take a while to decide where your efforts will be most effective.

If the supply of the donated property is more or less than the demand for it, which is often the case, the replacement cost becomes less important. This will only occur in extreme circumstances, but it’s worth mentioning. In many situations, in-kind donations can present a mutually beneficial arrangement between donors and in-kind donation meaning donees. However, there are scenarios in which in-kind donations can create problems for those who receive them. For example, let’s say a community center was running low on chairs and a local carpenter decided to donate some furniture to help out. Because no cash traded hands, this would be considered an in-kind donation.

Documenting in-kind donations

This will help keep your internal operations organized and running smoothly. It is also important to outline what gifts your nonprofit will not accept. This will prevent the waste of goods you can’t use and also prevent time lost processing gifts you can’t use. Continuing with the arts organization example, if you do not do any programs with oil paints, explicitly outline you do not accept oil paints.

That said, almost all nonprofits can benefit from accepting this type of donation. An in-kind donation is a non-cash gift made to a nonprofit organization, including goods, services, time, and expertise. Individuals, corporations, and businesses can all make in-kind donations. An in-kind contribution https://www.bookstime.com/articles/invoicing-tools is any non-monetary donation, such as a service or a good. If someone lends their digital marketing skills to your nonprofit free of charge, this is an in-kind contribution. Someone gifting your organization with an art piece or a bundle of computer hardware is also contributing in-kind.

Pros of in-kind donations

That being said, most nonprofits track their volunteer hours to provide evidence of community support. This standard applies to organizations that are subject to an annual audit by an independent accountant. 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. Keeping accurate records of your in-kind donations will help you seamlessly create thank-you letters. It will also provide you with accurate reporting and financial statements. Also, if you are a non-profit that regularly has to purchase supplies, in-kind donations will save you the time of ordering and recording your purchase as an expense in your accounting software.

• In-kind donations can also be beneficial for engaging employees in charitable activities.
• If a donation does not significantly impact your mission, it is not worth accepting.
• For example, if one of your donors is a lawyer, they may be willing to provide legal services in-kind for your contribution outside of their firm.
• Create a gift acceptance policy and share it with donors, explaining the appropriate types of gifts and thresholds for acceptance.
• Since some of those valuation methods can get really detailed, I will give you a brief overview and provide links to more detailed articles regarding in-kind donation valuation below.
• Some organizations like thrift stores, community closets, food pantries and housing organizations rely on in-kind donations as a significant part of their operations.

As such, some organizations end up with donations they already have or gifts that require more commitment than they anticipated. By understanding what in-kind contributions are and how they work, your organization can ace tax reporting. Consult with a legal professional for information on how your nonprofit should handle these donations. A gift acceptance committee can handle any discrepancies that occur with the policy versus received donations. Creating a screening group can be especially helpful for large nonprofits that often receive non-monetary contributions.

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Ultimately, in-kind donations should be seen as a tool for addressing real needs rather than merely an opportunity to dispose of unwanted goods. In addition, this flexibility is beneficial during emergencies or unexpected events that may require quick changes to an organization’s priorities. The safeguard and a legislative is needed in case someone wanted to abuse those benefits. Payment in kind is generally an exchange of goods or services for other goods or services with no medium of exchange.

You or your accountant will also need to record an in-kind donation as a contribution at the donor’s stated fair market value in your accounting software. The fair market value of goods is determined by what the nonprofit would have paid if they had purchased the items, typically provided by the donor, if possible. One of the main challenges of in-kind donations is how to record and value these gifts. The IRS has lengthy and detailed rules for in-kind donation accounting and reporting.

How to Track In-Kind Donations

The manager wasn’t ready to make a big shoe donation but did offer to provide water bottles for all the students. Arielle mentally reviewed her gift acceptance policy and quickly agreed to the donation. If someone donated their professional services, ask for their hourly rate or what they would have charged a paying client for the job they did for you. For instance, if a company receives an in-kind donation of computer equipment for $15,000, it should record an in-kind income of $15,000 and an in-kind expense of $15,000 on its budget. However, often businesses fail to recognize an in-kind donation properly. The key to a perfect in-kind donation thank you letter is its specificity.