Identifying And Recording In-Kind Contributions

Charitable contributions of all kinds are no doubt the backbone of nonprofit functionality. Can’t go wrong with free stuff, right? Right. Although, the flip side of these contributions definitely involves some extra bookkeeping. As a nonprofit organization you’re required to record and report both cash donations, as well as in-kind donations.

What is an in-kind contribution? The answer is fairly simple, an in-kind contribution is a non-cash gift to a nonprofit. These include the donation of goods, services and even time – that can be used to support the organizations cause. This tidbit will be important in determining whether or not to record certain in-kind donations. Let’s get into a little more detail about the different categories or types of in-kind donations.

Categories Of In-Kind Donations

Goods AKA Tangible Assets
The first type of in-kind donation is arguably the easiest to identify and to record. Donated goods include any type of physical product or supply that you can hold physically touch or hold. These include clothing, food, office supplies, furniture, cars, appliances, equipment, books and more. Items can be new, used or loaned and an organization can choose to utilize the goods or resell them for cash.

Goods are typically the easiest to record because there are many comparisons available when determining the Fair Market Value. For example, if a brand-new appliance was donated, you can check local retailers pricing on the same appliance to reference a Fair Market Value for the item. Similarly, if a used appliance was donated, you can cross reference the value of the used item on a platform such as eBay or Amazon.

What if an item is donated to an organization only to be resold for cash value? For example, a car is donated, and the organization resells this car in a charity auction, for cash. In this instance, the Fair Market value of the item would be determined by the resell price, as opposed to the original selling price of that item.

Furthermore, goods that are unusable shouldn’t be recognized or recorded. This can include expired or rotten foods, clothing damaged beyond wear-ability and outdated vouchers or tickets.

Intangible Assets
This type of in-kind contribution refers to any non-physical item of value donated to the organization, such as advertising, trademarks, royalties, patents and stocks.

Long-Lived Assets
Many nonprofit organizations also receive free or discounted use of office space, buildings, vehicles, equipment, utilities or other long-lived assets. These types of contributions must be donated by the legal owner of the property.

Services
In-kind contributions in the form of services are only important if they enhance non-financial assets or they are services that would have otherwise been purchased. Essentially, in-kind services include those that would help the organization directly or indirectly support its cause. These contributions can be donated by individuals, businesses, corporations, institutions and organizations. Some examples of in-kind services include landscaping, babysitting, accounting, legal, event planning, catering and publishing.

It is only required to recognize and record the services that either create or improve a non-financial asset or that would have otherwise been purchased by the organization. For example,

When determining the Fair Market Value of donated services, you will multiple the going hourly rate for the service by the number of hours donated.

When are you exempt from recording In-Kind Donations?

Volunteer Services
General volunteers, who do not possess any special skills, licenses or certificates related to the work that they are providing, should not be recorded as In-Kind donors. For example, if a lawyer reviews legal documents for free, then this would need to be recorded. If that same lawyer volunteers to hand out water bottles at a charity fundraiser, then that is just good old volunteer services off the books!

Services That Would Have Gone Unpurchased
If a company decides to donate services to your organization, that would not otherwise be purchased, then you do not need to record this. For example, if a professional organizing company offers to organize your office space for free, but you had not planned to spend that money or hire anyone to do this work (before their offer) then this is just volunteer work. On the other hand, if an event planning company offers to help plan a fundraising event, that you would have otherwise hired someone to plan, this should be recorded as an In-Kind contribution.

Just Passing Through
If your organization serves as a type of middle-man, perhaps for donations, then you need not record items that are just passing through. For example, if someone donates a bunch of childrens’ clothes and specifies the desired shelter or program where these clothes are to end up, this would count as just passing through.