Soapbox Engage Blog

In-kind donations, or contributions of goods or services, can present many benefits for your nonprofit organization. They allow you to reallocate the funds you'd typically spend on these donated offerings to other areas of your budget while still obtaining the resources your nonprofit needs to grow and execute its mission.

This form of giving also provides donors who may not be able to contribute monetarily with another way to support your cause. Plus, with in-kind gifts, you can easily report on their impact to build trust with supporters.

This guide will help you apply the principles of proper nonprofit financial management to maximize your use of in-kind donations.

1. Implement a Gift Acceptance Policy

Imagine you're collecting school supplies for the after-school program your nonprofit runs. You put a bin outside your facility and are pleased to see that many community members have dropped off items for your program.

However, upon sifting through the bin, you find that some of the items aren't up to your standards. You find broken scissors, used crayons that have seen better days, and dried-out glue sticks.

To avoid a scenario like this in the future, you need a formal gift acceptance policy. Having this type of policy in place helps prevent you from receiving items you can't or shouldn't use and helps you politely decline gifts that fall outside your policy.

A strong gift acceptance policy should include the following elements:

• The types of gifts your organization can and can't accept
• The circumstances under which you'll accept different types of gifts
• The process for recording each type of gift

Promoting your gift acceptance policy on your website and social media can also inspire supporters who have eligible items on hand to contribute to your cause. As YPTC's in-kind donation guide explains, "[A] soup kitchen may create a social media post highlighting items that are currently in demand and attach its in-kind donation policy. Upon seeing the post, a donor may go through their pantry to find non-expired canned goods and drop them off at the soup kitchen's headquarters the next day."

2. Consider Volunteer Time Carefully

Contributions of services, such as legal, accounting, web design, or consulting services, can also be in-kind donations. That said, there are clear distinctions between volunteer time and in-kind services that you should report on your financial statements.

To consider services received as in-kind donations, at least one of the following conditions must apply:

• The service must create or enhance an asset, or
• The service must require specialized skills that you would otherwise need to purchase from a professional.

For example, a volunteer packaging personal hygiene kits for community members in need does not create or enhance an asset nor require specialized skills, so this volunteer time would not be reportable as an in-kind donation. On the other hand, perhaps one of your supporters owns a graphic design company and offers to redesign your website. This service involves specialized skills that you would otherwise hire a professional to perform, so this service would be an in-kind donation reportable in your financial statements.

3. Evaluate In-Kind Donations Using Fair Market Value (FMV)

Nonprofits are responsible for determining the value of the in-kind donations they receive. You should use fair market value (FMV) calculations to do so. Here's what this looks like for different in-kind contributions:

• Items with a known marketplace value. Use the listed price as the FMV. A donated supply item may have a price tag on it, or you can find it listed online from the original seller. Just remember that since items may depreciate over time, you might need to ask an accountant for advice on valuing contributions you're uncertain about.
• One-of-a-kind items. Check with the item's provider. Unique contributions, like custom artwork donated as auction items, typically require the owners to weigh in on their value. Verify their estimates by referencing similar items for sale online, as providers may overestimate the monetary value of their contributions due to sentimental value.
• Donations of services. Ask the provider how much they charge for similar projects. You may also find their hourly rate and multiply it by the hours they've spent helping your nonprofit to calculate FMV.

4. Record In-Kind Donations as Both a Revenue and an Expense

After determining FMV, record your in-kind donations. Because you must report them separately in your financial statements, you'll track in-kind donations in a separate revenue account within your chart of accounts.

Since in-kind donations aren't monetary contributions, you can't record them as you would cash or cash equivalents. Instead, you'll record in-kind contributions as both a revenue and an expense. Thus, they won't impact your net income.

Next, you'll report the in-kind donations you receive as part of your total yearly revenue on Form 990. Include donations of property and goods as revenue, and report gifts of services and use of facilities as a reconciling item at the end of the form.

5. Automate In-Kind Donation Receipts

For in-kind donations worth $250 or more, you must provide written acknowledgments to donors that include the following information:

• Your nonprofit's name and employer identification number (EIN)
• The date in-kind property was received or in-kind services were completed
• A description of the item received
• A statement that clarifies your organization provided no goods or services in return for the contribution

To streamline this process, consider automating these receipts. For example, you might integrate your CRM with your accounting software, develop an email template for in-kind donation receipts, and set up a trigger that automatically sends this email when you've recorded an in-kind donation. While you may have someone review these emails before sending them to ensure accuracy, this type of template can still expedite written acknowledgments and help you recognize in-kind donors as quickly as possible.

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While in-kind donations can provide unique value to nonprofits and donors alike, you must manage these contributions appropriately. If you run into issues with managing in-kind donations or want help overseeing this process, consider reaching out to a nonprofit accounting firm for specialized assistance.