Donations are the lifeblood of many nonprofit organizations. When you think of receiving donations, it's likely that you think about monetary gifts. After all, cash is king!
But cash donations aren’t the only ones that matter. In-kind donations play a major role in supporting the day-to-day operations of nonprofit organizations.
So, what are in-kind donations? And how can you solicit them for your nonprofit? Keep reading and we will tell you everything you need to know!
Defining an In-Kind Donation
An in-kind donation is a contribution to a charitable organization that involves providing non-cash assets or items of value instead of money.
Often referred to as a gift-in-kind, these donations can encompass tangible assets such as goods, services, equipment, or property. In return, donors may receive a donation receipt for tax purposes.
In-kind donations play a pivotal role in supporting nonprofits by offering essential resources that directly benefit their missions and beneficiaries.
Physical goods or products are one type of an in-kind donation. This type of in-kind donation would be useful for organizations that work directly with the community it serves, like a food bank, animal rescue, or homeless shelter. Some examples of in-kind donations that are physical goods include:
- Clothing or shoes
- School supplies
- Office supplies
- Hygiene items,
- Baby supplies (diapers, formula)
In-kind goods or products can also benefit nonprofits that don’t necessarily provide direct services to their communities. For example, most nonprofits could benefit from donated office supplies and equipment regardless of their mission!
Services are an intangible type of in-kind donations. Almost every nonprofit can benefit from service-based in-kind donations. Some examples of these types of in-kind gifts are:
- Repair/handyman work
- Pro-bono legal services
- Technical/IT support
- Manual labor (landscaping, painting)
Even though they aren’t cash, in-kind donations can be a game-changer for many nonprofits! In-kind donations can help offset costs that your nonprofit would incur by having to purchase or pay for the goods and services donated.
3 Real-Life Examples of In-Kind Donations
Now that you know what an in-kind donation is, you might still be wondering—how could an in-kind donation benefit my organization? Great question!
We’re going to share with you some examples of real-life in-kind donations and their incredible impacts on nonprofit organizations. Keep reading!
At the International Rescue Committee in Silver Spring, Maryland, the refugee employment team had a program to help newly arrived refugees and immigrants find jobs. A donor made a generous gift of interview-appropriate clothing (suit jackets, ties, skirts, button-up shirts, etc.) for the clients to wear when they were attending job interviews. This is an example of an in-kind donation of goods.
The United Way of the Greater Lehigh Valley in Pennsylvania hosts an annual Day of Caring each June. On this day, volunteers from across the region come together to donate their time and talents to local nonprofits. In 2022, several volunteers worked to repaint the walls of a community school in Allentown. This is an example of an in-kind donation of services.
A local church in York, Pennsylvania, collected school supplies for Communities in Schools of Pennsylvania, a nonprofit that serves at-risk youth. Their donations included backpacks, pens, pencils, notebooks, crayons, highlighters, and folders. The church group delivered these items, valued at over $1,500, to the nonprofit to be distributed to the students it works with. This is another example of an in-kind donation of goods.
It’s important to remember that in-kind donations can take many different forms; these are just a few examples of real-life in-kind donations!
How to Increase Your In-Kind Donations
Fundraising for in-kind donations is not all that different from fundraising for monetary gifts. And since in-kind donations don’t require donors to give money, sometimes securing this type of donation is even easier. People are often happy to donate their time, services, or items for free.
The first step to increasing your nonprofit’s in-kind donations is determining what items you need. Depending on your organization’s mission, programs, and services, this will vary.
Once you know what kind of items or services you need, let people know! It’s a great idea to start small. Begin with the people closest to your organization—your staff, volunteers, and board members. These key stakeholders will help you begin to get the word out.
Then, go digital! You can promote your ‘wish list’ on your social media platforms, website, and in your regular digital communications (like newsletters) with your supporters.
If the community knows that you have a specific need, you’re more likely to receive the right type of in-kind donations. The Ronald McDonald House Charities of Central Pennsylvania shares its wishlist on its website and includes a link to its Amazon wishlist. This is a really great way to show donors exactly what you need and link them directly to a place where they can purchase it!
Need help creating an Amazon wishlist? Check out this helpful how-to guide.
Next—get out in the community. Target businesses and corporations in your local community that may be familiar with your organization and the impact you have locally. Talk to business owners, financial institutions, churches, and other faith groups.
After your initial contact, be sure to follow up! Even if the answer is “no,” it’s really only “not right now”. Keep the lines of communication open and be willing to build a relationship before you hear a “yes!”
How to Report In-Kind Donations When Filing for Taxes
Before you start accepting in-kind donations at your nonprofit, you need to become familiar with the tax rules and regulations surrounding these gifts. There are rules about how in-kind gifts are acknowledged, as well as rules for accounting for in-kind donations.
Remember: the IRS’ rules about in-kind donations are lengthy and detailed. You might want to consider working with an expert in this area to ensure that your nonprofit has the correct processes and structures in place to comply with these regulations.
Accounting for In-Kind Donations
It’s not just fundraisers who need to be aware of tax regulations—your finance team needs to be in the know as well. In fact, recording in-kind donations is spelled out as part of the Generally Accepted Accounting Principles (GAAP).
You will want to formalize a few processes with your development team before you begin to accept in-kind donations. Keep reading to learn more!
Fair Market Value
First, you will want to determine how to calculate the fair market value of in-kind donations. The Financial Accounting Standards Board (FASB) defines fair market values as “the price that would be received to sell the asset or paid to transfer the liability.”
What does that mean? Basically, it means that the value of an in-kind donation is the resale value of the good or service at the time of acquisition.
For some items, this is easy to calculate. For example, if a donor gives you a bicycle with the tags still on it, you can estimate the value of that bicycle based on when it was purchased.
Other items, like pro-bono legal services, are more challenging to assess the fair market value of. In general, your nonprofit should determine a fair value for the service provided per hour, then track the number of hours that service is provided to your organization.
Recording In-Kind Donations
As soon as you receive an in-kind donation, you should immediately determine the fair market value of the donation and record the gift.
Initially, in-kind donations should be recorded in your chart of accounts (COA). In your COA, you or your finance team should create a separate revenue account for recording in-kind gifts. It’s important that the credit and debit columns of the account always net to zero.
For example, if a handyman donates $500 worth of manual labor, you would record it as:
- Debit in-kind revenue: $500
- Credit in-kind revenue: $500
The net should always be zero because the donation doesn’t actually impact the amount of money in your nonprofit’s bank account.
Another important aspect of correctly recording in-kind donations is ensuring that they are recorded on your Form 990. And according to the IRS, in-kind donations valued at more than $25,000 or gifts that include art or historical artifacts require additional paperwork.
Keep in mind also that the IRS may have specific guidelines depending on what type of item was donated to the nonprofit organization. For example, there are regulations specifically surrounding vehicle donations to nonprofits. It’s important you and your finance team conduct thorough research into the rules, regulations, and reporting requirements set by the IRS.
If you need additional support on this, it is a good idea to connect with an expert or a consultant to help you and your team remain in compliance.
Acknowledging In-Kind Donations
In the United States, the Internal Revenue Service (IRS) allows for in-kind donations to qualified organizations to be tax deductible.
When a nonprofit organization receives an in-kind gift valued at over $250, it must provide the donor with a written acknowledgment of the donation.
According to the IRS, several items must be included in this acknowledgment letter. You and all development staff in your organization should know these requirements so that in-kind donations can be correctly recorded and acknowledged. For more information, visit the IRS website.
Gift Acceptance Policy
You may already have a gift acceptance policy for cash gifts, but you will also need a gift acceptance policy for in-kind donations as well. This will help your nonprofit ensure that the items and services you receive are used for and align with your organization’s mission.
Your gift acceptance policies can be included in your nonprofit’s bylaws.
The gift acceptance policy protects your nonprofit and sets clear guidelines for your staff regarding when and how to accept in-kind donations for your nonprofit.
This policy is also useful to your donors by setting clear expectations for what types of in-kind donations you will accept and how you will accept them. It lets your donors know that their gifts will be utilized and won’t end up in a dusty storage closet somewhere.
This gift policy also makes it easier for you and your staff to turn down in-kind donations that are not appropriate or are not a good fit for your organization without offending the donor.
For example, if you are a domestic violence shelter, you likely accept all kinds of in-kind donations like clothing, kitchen items, bedding, towels, food, etc. However, it is also likely that you want to ensure the items you receive are in good condition and are usable.
Your gift acceptance policy could clearly outline that you only accept clothing donations that are in good condition and are seasonally appropriate. Then, if a donor comes to you in June with 500 winter coats, gloves, hats, and scarves that you don’t have a place to store, you can refer to your gift acceptance policy and decline the donation.
Wrapping Up: What is an In-Kind Donation?
In-kind donations are non-monetary donations of goods or services made to a nonprofit organization.
In-kind donations are a great way to support the day-to-day operations of a nonprofit and can be incredibly beneficial.
Before you start soliciting for in-kind donations, however, you should ensure that you and your team are familiar with the IRS rules and regulations about recording and accounting for these gifts. You should also be sure you have a gift acceptance policy in place and a plan to acknowledge all of the in-kind donations you receive.
With these processes in place, you’re ready to receive in-kind donations!