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Everything Your Organization Needs to Know About In-Kind Donations

Tatiana Morand  20 January 2020  0 comments
 

in kind donations

 

“I wish there was a way for kids to play sports with no equipment,” Arielle half-joked to her office mate Mike as she placed yet another order for jump ropes and mitts. 


“I think that’s just called ‘running’,” he replied. 


“Nope, even running ultimately requires shoes,” she said. “And it all costs so much.” 


The nonprofit they worked for ran sports programs for at-risk youth all over the city, and their budget was already stretched.


“Can’t we get Nike to donate a truckload of shoes?” Mike asked. “Or even Moe’s Discount Shoe Emporium?” 


That got Arielle thinking. 


While a truck full of Nikes was probably a bit of a stretch, she hadn’t really sought any in-kind donations. Given her organization’s constant need to purchase sports supplies, that had potential. 

What Are In-Kind Donations?

An in-kind donation is a non-cash gift made to a nonprofit organization, including goods, services, time, and expertise. Individuals, corporations, and businesses can all make in-kind donations. 

What Can Be An In-Kind Donation?

In-kind donations include physical property (stuff!), intangible property (copyrights, patents, intellectual property), services, and rent-free space. Anytime someone donates a physical object or shares their professional expertise, you’re most likely dealing with an in-kind donation. For example, when the hardware store donates lumber for new benches on the playground, or a graphic designer creates your logo pro bono, that’s an in-kind donation. 

What’s So Great About In-Kind Donations?

In-kind donations help nonprofits access goods and services that would otherwise be unaffordable, or free up resources to be spent on something else. 


Some organizations, like thrift stores, community closets, food pantries, and housing organizations rely on in-kind donations as a significant part of their operations. Other organizations have less regular in-kind needs, but almost all nonprofits can benefit from this category of donation.


In-kind donations are often a simpler way for businesses to give because they don’t have to worry about their cash flow. Additionally, businesses often pay less for goods, so they can afford to donate more in goods than they could in cash.

What’s The Problem With In-Kind Donations?

Did your nonprofit ever get a donation you had… absolutely no use for? 


Or worse, one that required a big commitment you didn’t anticipate?


Of course, that donation was probably very well-intended. 


The donor probably felt great about giving your nonprofit their old rotary telephone, or a boat that turned out to need extensive work to be sea-worthy. Their hearts are usually in the right place, but not every in-kind gift is actually good for the nonprofit. 


Arielle was reluctant to say no to any donation, no matter what it was. That’s how she ended up with 12 cases of candy bars she didn’t know what to do with. 


The problem with in-kind donations arises when they aren’t part of any strategy your nonprofit has. Unsolicited in-kind gifts can create issues with physical storage space, utilizing the gift, and simply having no need for it. Some gifts, like real estate or vehicles, can turn out to be way more hassle than they’re worth, so proceed with caution. 


You might accept these gifts because they 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. 


A local company had donated them, and while Arielle appreciated the thought, she was conflicted. 


“We already have a hard time convincing the kids to eat the sensible snacks we provide at practice,” she said. “Nutrition education and healthy living are a big part of our sports program, and I think handing these out would really send a mixed message.”

How to Create a Gift Acceptance Policy

To avoid filling your office with things you don’t need, and to help donors make the best in-kind gift to support your mission, you’ll need a gift acceptance policy. This is a document outlining what kinds of gifts you accept, as well as what you don’t. Its length and detail will depend on the size and scope of your organization, but it should include:


  • The kinds of gifts you accept 

  • The kinds of gifts you don’t accept 

  • Who you accept gifts from (individuals, corporations, governments)

  • What kind of gifts are only accepted with review (your own, or legal counsel)

  • How gifts will be recognized


Check out these examples from the Council on Nonprofits to get ideas for what you may want to include in your own gift acceptance policy. 


Arielle decided to start her gift policy with a reminder about the mission. 


“Kids Sports is dedicated to helping the youth of our city develop strong character and live healthy lives through sports training and athletic activities. We accept gifts and donations that help promote that mission.”


In discussion with the board, she decided not to accept food donations at all, due to storage and logistic concerns, in addition to the nutritional ones. 

In-Kind Donations FAQ: Everything You Ever Wanted to Know

The best source of information about recording, acknowledging, and reporting your in-kind donations is your organization’s tax professional. However, this will give you an overview of in-kind contributions and their requirements. 

Are in-kind donations tax-deductible?

Both you and your donors should consult your own tax professionals, but often in-kind donations are tax-deductible for donors. 

Are in-kind donations considered revenue?

Yes. Their fair market value is considered revenue. 

How do I document in-kind donations? 

In addition to your donor acknowledgment, you or your accountant should record the in-kind donation as contribution revenue and as an asset or expense at fair market value in your general ledger. 


The fair market value of goods is determined by what the nonprofit would have paid if they purchased the items. Contributed services are included in financial statements if those services create or enhance non-financial assets, or require specialized skills, are provided by individuals possessing those skills, and would need to be paid for if not donated. 

How should I recognize in-kind donations? 

You should send the donor an acknowledgment that includes your tax ID number, a description of the goods and services they gave, and the date you received them. This letter should also confirm that donors received no substantial goods or services in exchange for their contribution. Generally, you should not assign a valuation to the goods or services -- donors are responsible for that. 

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

In-kind contribution of property, but not of services, should be reported on the 990. According to the IRS, these should be reported in Part VIII, line 1g, on line 1 of Parts II and III of Schedule A, in Part II of Schedule B, and in column (c) of Schedule M, if applicable. The value of donated services are shown as reconciling items on the 990. 

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

For nonprofits, “pro bono” is just another way to describe an in-kind donation of professional services. The professional gives their services for the good of the public, rather than their usual fees. 

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

To figure out the fair market value of an in-kind gift, you’ll need to do a little research. What would your organization have paid for goods at retail? Check the stores you would have purchased them at. If someone donated their professional services, ask for their hourly rate or what they’d have charged a paid client for the job they did for you. 

How to Get In-Kind Donations for Your Nonprofit

It’s the perpetual nonprofit question: How do we get these donations? To get started with in-kind gifts:

What Are You Asking For?

Whether it’s someone to fix your front stairs or six pounds of coffee for your book clubs, would a donated good or service help you save your resources and pursue your mission?


As Arielle considered her programs, she found several opportunities for in-kind giving:


  • Many of the kids who participated in the sports program didn’t have appropriate footwear. Currently, the organization purchased shoes in these cases, spending about $1000 a year. An in-kind donation could really help. 

  • Most of the kids didn’t have gloves and balls to practice with at home, but the organization couldn’t afford to supply them. Maybe the local sporting goods store would make a donation, or she could launch a community drive for gently-used sports equipment.

  • No one had updated the safety waiver in a few years, and it would be great if a lawyer could take a look at it pro bono. 

Start With Those You Know

Once you know what you need, you can start asking. Begin with the people closest to your organization like board members, staff, and volunteers.


Arielle’s first stop was her board, followed by the volunteer coaches who ran the program. 


When she told everyone what she was looking for, she almost immediately heard back from one of the coaches. 


“My wife’s a lawyer, and she’d be happy to review the waiver,” he told her. 

Expand Your Reach

Next, expand your search to your local community, including businesses and individuals. 


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 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. 


The manager wasn’t ready to make a big shoe donation but did offer to provide water bottles for all the students. Arielle mentally reviewed her gift acceptance policy and quickly agreed to the donation. 

Target Corporate Giving Programs

When you’re brainstorming fundraising ideas, “find a big company to donate” probably crosses your mind. Corporations of all sizes make in-kind gifts, and it’s worth asking. However, for big companies, be aware that nonprofit competition is quite fierce. 


Start by making a list of companies that might be a good in-kind partner for your organization, then investigate. Do they have a “corporate sponsorship” or “community involvement” section of their website? What kinds of gifts have they given in the past (check their press releases)? That will help you determine if they are interested in making the kind of gift you’re hoping for. 


Arielle targeted shoe manufacturers, as well as national sporting goods stores, and followed the directions on their websites to submit in-kind requests. 

How To Ask For In-Kind Gifts

Asking for an in-kind gift is not radically different than asking for any other kind of support. The most important thing is to show donors the impact the gift will have and the difference it will make. That’s true whether the donor is an individual giver or the VP of Corporate Responsibility at a giant corporation.

You can ask for general in-kind gifts on your donation website, broadcast on social media, or in an appeal to your supporters. For corporate gifts, you’ll probably need to send an email or letter explaining your need and how the donation will help, though some businesses will direct you to an online form or have a dedicated application process.

In-Kind Donations Help You Grow

With her new gift acceptance policy and in-kind strategy, Arielle was able to grow her programs and build the community around her organization. The sports equipment drive got a good response, and people donated enough to create a “practice library” of equipment that kids could take home to work on their skills. 


When the candy bar donor approached her about another donation, she pointed them to the gift acceptance policy, and told them they were no longer accepting food donations. To her surprise, they weren’t upset, and asked if they could write her a check instead.


In-kind donations can help you stretch your resources and meet your needs. They give donors another way to give, and nonprofits another way to connect with the individuals and businesses in their communities. 


Tatiana Morand

Posted by Tatiana Morand

Published Monday, 20 January 2020 at 11:49 AM
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