In-Kind Donations: Everything Your Nonprofit Needs to Know

Arielle added a “wish list” to her organization’s website and put out the call for sports equipment on her social media, email and newsletter channels. She sent a letter introducing herself and her organization https://www.bookstime.com/accounting-services-for-startups to local sporting goods stores, asking for a meeting with the store manager to talk about partnering. When she followed up a week later with a phone call, one manager invited her to come in and talk.

Use of property donations such as reduced or free rent should be recorded and measured at fair market value. In this article, we’ll explain more on what is an in kind donation, who can accept in kind donations and the pros and cons. We’ll also cover how to report and in-kind donation meaning record in kind donations in your accounts. We build exceptional software solutions to support nonprofits and charities. When you’re talking about in-kind donations it can be very easy to focus on the “what” especially when you are speaking with corporate partners.

The Cons – The Pros and Cons of In-Kind Donations

A chair, you should show gratitude by specifically explaining how those chairs will positively impact your organization. We recommend that you make a habit of sending a receipt to the donor as soon as possible. Use Keela to automate the donation receipt process to save time, whether you issue receipts immediately or at the end of the year. One hitch to keep in mind is that under certain conditions, a receipt issued for a non-cash donation must be issued for the lesser of the donation’s fair market value if multiple values exist. The cost of an item that the donor originally incurred to acquire the item may be the best way to determine FMV. Additionally, if the donor can provide that item’s actual selling price, the FMV can be determined easily.

Essentially, non-profits should send their donors an acknowledgment note with the description of the goods they donated, the date received, and the organization’s tax ID number. The note should also confirm that the donor didn’t receive anything in exchange for their contributions. Additionally, you shouldn’t assign value to the goods or services provided. While a gift acceptance policy should guide all donations, gift agreements should be used when dealing with large in-kind gifts donated for specific purposes or gifts accompanied by complex donor requests.

Gift acceptance policy for accepting in-kind donations

When your nonprofit receives monetary donations, you proceed to spend that funding to run your organization and your programming. For instance, your organization might include in your budget $10,000 to pay for lawyer services throughout the year. An in-kind donation from the lawyer, where they provide their services for free, would free up that $10,000 to be reallocated to other aspects of your organization. With her new gift acceptance policy and in-kind strategy, Arielle was able to grow her programs and build the community around her organization.

• Firstly, they should identify the item or service that has been donated and decide on its fair market value.
• The first question to ask is whether your nonprofit’s accounting is following Generally Accepted Accounting Practices (GAAP).
• And it makes it easier for your staff to turn down in-kind donations that are not a good fit without making the donor feel that their offer was meaningless to the nonprofit.
• For instance, donations of equipment or supplies to a school can immediately affect the quality of education the students receive.

They can help reduce costs and allow organizations to focus their financial resources on other critical needs. Additionally, in-kind donations can provide unique opportunities for individuals and corporations to contribute their skills and expertise to important causes. An in-kind donation is a non-monetary gift made to a nonprofit organization that can be used to further its mission.

How to Ask for In-Kind Donations

In-kind donations can provide necessary supplies to organizations that need them most. For instance, a gift of computers or software to a nonprofit operating in an underserved region can help improve residents’ education and job opportunities. In-kind donations can be especially beneficial for small organizations that may need the means to purchase equipment, supplies, or services. These donations can help small organizations get off the ground or continue operations without financial burdens. Donated services that create or enhance a nonfinancial asset do not need to be specialized to be recognized. For a building project, contributed services might include contractors, engineers, painters, etc.

• Before accepting any donation, ensure it aligns with your organization’s mission and values and assess its impact.
• Tax deduction is only if the fair market value of property is less than cost.
• An in-kind donation from the lawyer, where they provide their services for free, would free up that $10,000 to be reallocated to other aspects of your organization.
• But the sources for these gifts can include anyone and anything from individuals to businesses to associations and major organizations like colleges and universities.
• For example, donating clothes to a community urgently needing medicine would not be helpful.

Plus, recording your acceptance of in-kind donations is spelled out as an important part of the Generally Accepted Accounting Principles (GAAP). When the animal shelter from the last section explains that they need additional collars and leashes from their supporters, they’ll likely have a whole slew donated! If supporters don’t realize that’s a need, they may not think to donate them. Your gift acceptance policy isn’t just telling supporters what not to give, but it can provide some direction as to what they can do to make the greatest difference for your mission.

Services – Types of In-Kind Donations

Use this template to create an operating budget and monitor your nonprofit’s financial performance during this fiscal year. Several deductions can occur during a fair market evaluation which can decrease the total value. This is the case when donating property, intellectual property, used household items, and several other items. As there must be a reasonable relationship between replacement cost and FMV, replacement cost rarely factors into fair market evaluations.

In-kind donations can present a significant gray area in terms of valuation. That’s how she ended up with 12 cases of candy bars she didn’t know what to do with. A local company had donated them, and while Arielle appreciated the thought, she was conflicted. You might feel obligated to accept these gifts because you don’t want to discourage generosity, but managing piles of stuff that is unconnected with your mission and need can quickly get out of hand. The problem with in-kind donations arises when they aren’t part of any strategy your nonprofit has. Some gifts, like real estate or vehicles, can turn out to be way more hassle than they’re worth, so proceed with caution.