How to evaluate and record in-kind donations

In-kind donations are a vital component of running any nonprofit organization and furthering its vision. Whether you’ve been at it for years or are just starting out, it’s crucial to evaluate and record your in-kind donations accurately and uniformly to make your life easier down the road. 

When tax season inevitably creeps up on you again next year, this resource will help ensure you stay organized and ready to send everything off to your accounting team or department when the time comes to do so. 

What are in-kind donations?

First off, it’s essential to understand what is considered an in-kind donation. These “donations” include supporting resources besides money that gets donated to your organization. In-kind resources, or non-cash contributions, can consist of things you’d otherwise pay for, donated volunteer hours, donated services, supplies, or other free assistance.

How do you evaluate those resources?

When your nonprofit receives an in-kind gift, you must record this donation’s revenue based on its value and noting the date of receipt. The donations revenue or fair value is the price you would pay to receive this good or service or sell it to someone else. 

You can determine and record the value of the in-kind donation in several ways. These can include: 

  • Checking the price you’d pay for the good on the open market
  • Obtaining quotes from competitors to determine the going rate
  • Using a salary survey to determine the average cost of the skill level needed for the donated service

Following IRS Guidelines

Be sure to check out the IRS’s written comprehensive guide on gift substantiation. It’s important to note, some of those guidelines include:

  • Donors must have a bank record or written acknowledgment from the nonprofit before claiming a tax deduction for a charitable contribution. 
  • Donors must have a written declaration for any contribution of $250 or more.

We recommend reviewing the IRS guidelines and considering how they play in your current procedures and future processes. 

The IRS also offers guidelines around what should be included in your gift acknowledgment:

  • A statement that you are a tax-exempt nonprofit as recognized under Section 501(c)(3);
  • The date of the donation receipt;
  • Either a description of the property or services donated (the donor is responsible for assigning value) or the amount donated if cash or something equivalent; and
  • Either a declaration that the nonprofit did not exchange more than insubstantial services or goods in exchange for the donation or, if the donation was $75 or greater and there was an exchange of goods or services (such as a meal at a special event), a statement giving a fair estimate of the value of those goods or services. 

How to record non-cash contributions

To help keep things organized and uniform, you may want to designate a single person within your organization to track and record all contributions. While the recordings and receipts don’t need to be recorded instantly, thank-you cards, letters, or emails should be sent out well before business tax returns are due and in a timely manner to the donor. 

Find a process that works for your organization and team that checks off all the needed boxes. Having a procedure in place and simplifying the process keeps things running smoothly. You may want to include the following in your method: 

  1. Record the date, value, and nature of the in-kind donation
  2. Make record of the activities or programs for which those donated services were used
  3. Send a thank-you note to those who donate or volunteer 
  4. Track all receipts or supporting documentation for tax filing purposes

Doing it right the first time

If you have other questions about how to record in-kind donations or if your organization’s process fits the bill, our team is happy to help. Contact our office to learn more about how we can best help your nonprofit. 

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