Updated at: 01-06-2022 - By: Sienna Lewis

How do you know if you’ve made an in-kind donation? A non-monetary donation is defined as one that does not involve cash, bequests, or stocks. However, this is a lot to take in at once, so you’ll need to read on to get a better grasp of it.

In-kind donations are those made by donating goods, time, services, or knowledge in exchange for money. Individuals, groups, and companies alike can provide this service.

We’ll cover all you need to know about in-kind donations in full at the end of this piece, so stay tuned. In order to better inform you, we’ve compiled a list of the most frequently asked questions about in-kind donations.

What Kind Of Gifts Are Considered In-Kind?

We use the term “property” to refer to “things.” You can give anything of value in the form of intellectual property or rent-free space and services if you have intellectual property rights. An in-kind donation is one in which the donor provides a material good or a specialized service in exchange for some other good or service. To give an example, a hardware store might donate wood for new playground seats, or a graphic artist might build your company logo for free.

Gifts In Kind: Everything You Need To Know | Project HOPE

What Makes In-Kind Donation Great?

In addition to providing NGOs with much-needed resources, charitable contributions allow them to get otherwise unattainable services and goods. Many NGOs, like thrift shops and communal closets, rely on donations of food, clothing, and shelter. While certain non-governmental organizations (NGOs) may have fewer continuous in-kind requirements, most or all NGOs may benefit from such help. Because they don’t have to worry about cash flow, companies prefer to provide gifts in kind. In addition, since they spend less on commodities, businesses may donate more goods rather than cash.

In-Kind Donation Issues

Such a gift was given with the utmost of care. This is a wonderful feeling for the person who contributes an outdated rotary phone or a yacht that needs continual upkeep. However, not all in-kind donations are a smart use of resources. The disadvantage of in-kind donations is that they are not integrated into the broader strategy of your business. In-kind gifts might take up a lot of space in your home if they are unwanted. Gifts such as autos or real estate may need more time and effort than they’re worth in the long run, so proceed with caution.

In order to encourage charitable acts, it is possible to provide gifts to those in need, but this can quickly become a time-consuming and frustrating endeavor. In order to get the charity kids to consume the healthy food they bring to practice, it isn’t always simple.

Developing An Acceptance Policy for Gifts

With an acceptance policy you can help your contributors choose the best contribution for promoting and preventing overstocking of unneeded things in the workplace. You can specify which gifts you’ll accept and which you’ll reject. Merchandise will differ according on the breadth and size of your business.

You can learn how to record, identify, and report in-kind gifts by consulting with your organization’s tax specialist. On the other hand, you’ll get a deeper appreciation for in-kind gifts and the responsibilities associated with them.

#1. Are tax deductions available for gifts of in-kind services?

Although in-kind donations can usually be deducted from your wages, it is recommended that you contact with a tax specialist.

#2. How to document donations?

It’s becoming difficult to keep track of gifts-in-kind. Donors should be acknowledged and their contributions should be recorded in your general ledger, as well as any expenditures or assets at market value, by either you or your accountant. The price that an organization is expected to pay for a certain item can be used to calculate its market value. Such services should always be included in financial reporting since they require specialized skills and are provided by individuals with such skills.

#3. How should these donations be acknowledged?

The thank-you note should include your tax ID number, a description of the things you received, and the date you received them. Letters of thanks should be sent to donors to tell them that they would not be receiving any tangible goods or services for their donation. Gifts have a monetary value only because of the generosity of their donors.

#4. How a free service differs from a pro bono one?

Donations of professional services to a charitable cause are called “pro bono.” Rather of being compensated for their services, the expert donates their time and knowledge to the greater good of the community. There are several factors to consider when determining the fair market value of an in-kind donation. You’ll need to do some digging to find out the value of the in-kind contribution.

#5. How much would your business have paid on similar things if you bought them on the open market?

It’s possible you found them or bought them somewhere else. Ask about their hourly rate or how much they’d charge a paying customer for the work they did for you if they were a professional service provider.

Draft policies and procedures to get the most out of in-kind gifts

Nonprofits tend to focus on cash donations, but there are many more ways to give. When you get in-kind donations, here’s how to evaluate them and handle them for the foreseeable future.

Defining in-kind contributions

The term “in-kind” refers to donations in the form of goods, services, or your time rather than money.

Equipment, books, cars, clothing, furniture, and supplies are examples of tangible items. Advertising, patents, royalties, and copyrights are examples of intangible goods. Goods can be secondhand, new, or even borrowed.

Professional services donated in kind include those provided by corporations, small enterprises, vendors, colleges, and individuals working in various fields of expertise or trade. For example, transportation and printing assistance could be provided to your group.

People who provide their time on behalf of a nonprofit, either for free or in exchange for remuneration, are making an in-kind commitment of their time. An employer may also provide paid staff to a non-profit organization in order to help them out.

In-kind contributions as a revenue source

Nonprofits can benefit greatly from in-kind donations. But that’s not all.

Gifts-in-kind can be useful if your organization’s aim is to provide clothing for the homeless, for example. Other forms of in-kind support can lower the costs of your nonprofit’s programs and activities. You may even be able to use in-kind donations to free up your nonprofit’s cash to pay for things like payroll taxes.

To attract new donors and expand their resources, many nonprofits use in-kind donations instead of cash.

Establishing the value of in-kind contributions

It is necessary to record the fair value of an in-kind donation as revenue when your nonprofit receives it. The price at which you can sell an asset or get paid to transfer a liability is known as fair value.

You can use a variety of methods to determine the value of a present, or to verify the donor’s estimate of its worth. You could, for instance, say:

  • Take a look at how much you’d have to pay for a product on the open market before you buy it.
  • To find out what the going rate is, get quotes from rivals.
  • Calculate the typical cost of the skill level required for the donated service using a salary survey.

Consistently apply and disclose your chosen valuation method in your financial statements.

Benefits and risks of in-kind contributions

Gifts of goods and services may not be worth the effort and money. Your organization’s mission and principles can conflict with accepting particular presents, for example, or you may not be able to manage and sustain the value of a gift, like real estate.

In-Kind Donation: Your Guide to Raising Money without Raising Money | ClickTime

How can you know if an in-kind donation is worth it? ” Begin by drafting your own gift-receipt guidelines. Your donors’ expectations will be better managed and your staff and board members will benefit from having a defined policy.

The following items should be included in your gift acceptance policy:

  • There are certain kinds of gifts that are acceptable and others that are not.
  • Donations of a certain amount or value over a specified period of time, for example, could count as thresholds for gift acceptance.
  • How gifts are examined and how they are dealt with in the event that they are rejected.
  • For example, your nonprofit may undertake a review and seek legal counsel before accepting certain types of gifts, such as real estate.
  • Whether or not anonymous gifts are permitted

Post your policy on your website or make it readily available in printed form to help donors navigate it.

Establish parameters for in-kind contributions

Establish a method for accepting, documenting, and acknowledging in-kind donations.

Gift agreements

It is possible to employ a formal gift agreement in the case of big in-kind gifts given for specific purposes (such as building supplies for disaster relief) or in-kind gifts accompanied by specific or complex requirements from the donor. Make sure that you and the donor are on the same page with regards to the nature and purpose of the donation. It can also serve as a reference point if a dispute should develop. An informal agreement might help to ensure that both parties’ expectations are met over time.

Include the following information in your gift agreement:

  • Your non-name profit’s and the donor’s name
  • The start and end dates, if appropriate.
  • description of the gift and how it was given
  • The reason for the donation, as stated by the donor, and the steps your nonprofit will take to achieve that reason
  • When and how your organization will acknowledge the donation.
  • An undertaking that your nonprofit has agreed upon or is going to do in the future.
  • Clause noting that the gift’s intent may alter owing to unanticipated circumstances

In-kind forms

Also consider designing an in-kind form to help with reporting and acknowledging contributions more easily. Ask your donors to supply the following:

  • Description of the item, including if it has been used and if so, the age and condition of the gift.
  • The date on which your nonprofit received the donation
  • It’s important to know who the donor is.
  • how much the present is worth in today’s market and how it was figured out

Gift acknowledgment forms

For gifts over $250, you may want to create a gift acknowledgment form that contributors can use to claim a tax deduction. In addition, thanking your donors for their in-kind donations reminds them that you value and appreciate them just as much as cash donations.

It’s customary to provide the following information in an acknowledgement of a gift:

  • Your non-name profit’s and the donor’s name
  • A declaration indicating your nonprofit is a 501(c)(3) organization recognized by the IRS as tax-exempt (3)
  • A brief explanation of the donation, but no estimate of its financial worth
  • A statement indicating the organization gave no goods or services in exchange for the contribution, if such was the case
  • What your nonprofit gave in exchange for the donation in terms of goods or services is described below.

An in-kind donation’s value is ultimately up to the donor, but as a show of gratitude, you can recognise its worth. Consider using phrasing like this: “If it weren’t for your donation, we would have spent $_______ to obtain such an item.”

After each donation, you can either send an individual thank you letter or an annual summary by January 31 of the following year. A thank you note should be sent as soon as possible after receiving a gift—whether via traditional mail or email—in order to show gratitude. Taking this step will reassure the donor that the gift has been received and strengthen your relationship with him or her, as well.

Examples of written agreements

Before you create a written agreement for your nonprofit, check out examples drawn up by other nonprofits.

Before you draft a contract for your nonprofit, look at previous contracts.

As a starting point for your own acknowledgement letters, you can use this sample acknowledgement from Blue Avocado.

Evaluating the impact of in-kind contributions

In-kind contributions might be difficult to evaluate. Keep note of how in-kind gifts contribute to your organization’s overall aims.

Suppose your nonprofit is a museum, and your aim is to raise revenue and bring in 50,000 more visitors in five years. It is possible to ascribe an increase in revenue or visitors after the first year of receiving $10,000 in in-kind ads and banners.

It’s also possible to measure the impact of an in-kind donation by comparing what you would have spent on a similar product or service and where that money would have gone instead if you hadn’t donated.

Last but not least, showcase your achievements through newsletters, social networking sites, and other marketing materials. Perhaps this will encourage others to give it a shot themselves.

FAQs

What qualifies as in-kind donation?

Any other item can be donated as an in-kind donation, including cash. Donations of goods or services in lieu of cash are referred to as in-kind gifts. Goods like computers, software, furniture, and office equipment for your organization’s use or for auctions at special events are examples of in-kind donations.

What is the definition of in kind donation?

As the most popular source of in-kind donations for nonprofit organizations, large firms and businesses donate not just money, but the goods and services themselves. Companies should record the monetary value of in-kind donations received by non-profit organizations on their budgets in the same amount as the monetary value of in-kind donations they make.

You should report $15,000 in in-kind income and expenses on your budget when you get a donation of computer equipment worth $15,000. Businesses, on the other hand, frequently fail to appropriately recognize an in-kind donation.

To illustrate, here’s an example.

Are in-kind donations tax-deductible?

In-kind donations are generally tax-deductible for contributors, but both you and your donors should consult your own tax advisors.

Are in-kind donations considered revenue?

Yes. Revenue is calculated based on their market worth.

How do I document in-kind donations?

Along with a thank-you note, make sure you or your accountant records the in-kind donation in your general ledger as revenue and as an asset or expense with a fair market value.

Goods are valued based on what a nonprofit would have paid to buy them on the open market. Non-financial assets that are created or enhanced via the provision of donated services, or that necessitate the use of specialized skills and are offered by those who possess those talents, are included in financial statements.

How should I recognize in-kind donations?

Your tax ID number, the description of the products and services provided, and the date you received them should be included in the acknowledgement letter you send to the donor. Additionally, this letter should make clear that the donors received no major goods or services in return for their donation. Donors are responsible for determining the value of the donated items and services, so it is not your job to do so.

How do I record in-kind donations on form 990?

The 990 should include in-kind contributions of property, but not services. On line 1 of Parts II and III of the Schedule A, in Part II of Schedule B, and if appropriate in column (c) of Schedule M, these should be recorded according to the IRS. A reconciliation item on the 990 shows the value of donated services.

What’s the difference between an in-kind gift and a pro bono service?

“Pro bono” is a euphemism for in-kind donations of professional services to NGOs. Instead of charging their regular charge, the professional offers their services to the public.

How do I figure out the value of an in-kind gift?

Determine the worth of an in-kind present by conducting some research. At retail, how much would your company have paid for these items? Find them in the places where you would have bought them. Ask for their hourly fee or the amount they would have charged a paid client for the work they accomplished for you if they donated their professional services.

Why giving cash, not clothing, is usually best after disasters

How to Get In-Kind Donations for Your Nonprofit

Getting money has always been a problem for nonprofits. This is how you get started with in-kind gifts:

What Are You Asking For?

Does saving money by using donated goods and services, such as someone to repair your front stairwell or six pounds of coffee for your book groups, help you achieve your goals?

When Arielle was thinking about her projects, she discovered a number of possibilities for in-kind donations:

Children participating in a sports program were often unable to do so because they lacked the proper footwear. Instead, the charity currently purchases shoes for these situations, paying roughly $1,000 a year. In-kind donations could make a big difference.

The group couldn’t afford to equip the kids with gloves and balls to practice with at home. One option is to solicit donations from a local sporting goods business or organize a community drive to collect gently used sports equipment.

This waiver had not been amended in a few years, and a lawyer may review it free of charge.

Start With Those You Know

As soon as you know what you want, it’s time to ask for it. Get to know your board members, staff members, and volunteers first.

The volunteer coaches who operated the program were the next stop on Arielle’s tour, after which she went to her board of directors.

It didn’t take long for one of the coaches to get back to her once she explained her situation.

He offered to have his wife, who is a lawyer, look over the waiver.

Expand Your Reach

Continue your quest by looking at local organizations and individuals.

In order to raise funds for sporting equipment, Arielle created a “wish list” on her organization’s website and put out an appeal on her social media, email, and newsletter platforms. After sending an email presenting herself and her group to sporting goods businesses in the area, she requested a meeting to discuss cooperating. She called a week later and received an invitation to meet with a manager.

In lieu of large-scale shoe donations, the management offered to distribute free water bottles to all kids in attendance. The donation was swiftly accepted by Arielle after she re-evaluated her gift acceptance policy.

It’s A Wrap!

If you’ve read this far, I’m going to assume you have a basic understanding of what an in-kind donation entails before continuing. Non-monetary gifts from donors are also included in this category.