Recording In-Kind Donations

What are In-Kind Contributions

In-kind contributions are a wonderful way for your nonprofit organization to receive support that goes beyond monetary donations. These unique contributions involve the transfer of assets, such as goods or services, and can come from individuals, organizations, or companies.

  • Goods: In-kind donations can include physical materials that can be of great value to your organization. For example, someone might generously donate office furniture or computer equipment, which you can use to further your mission.
  • Services: Talented professionals can also contribute their skills and expertise as in-kind donations. This could be anything from accounting and legal assistance to free use of meeting spaces.

Recording In-Kind Donations

Properly documenting in-kind donations serves several important purposes. It ensures that both you and your donors have the necessary records for tax purposes, and it allows you to accurately report these contributions in your annual tax forms. Additionally, properly recording in-kind documents is a
requirement for following Generally Accepted Accounting Principles (GAAP).

When you receive in-kind donations, it’s essential to promptly estimate their value and record them in your organization’s chart of accounts. You can create separate accounts like “In-Kind Contributions – Goods” and “In-Kind Contributions – Services” in your chart of accounts to differentiate between tangible goods and professional services received.

Let’s say a lawyer generously donates $2,000 worth of services. To record this in your books, you would make the following entry:

  • Debit in-kind Contributions – Services $2,000
  • Credit in-kind Contributions – Services $2,000

Remember, the aim is to maintain a net zero balance in the account since the contribution doesn’t directly affect your bank account balance. While your cash remains the same, the in-kind donation enhances your flexibility by eliminating the need to spend money on the donated item or service.

Tax Considerations

There are two aspects to consider: the forms your nonprofit organization needs to submit annually, and the taxes your supporters pay.

Are In-Kind Donations Tax-Deductible for Donors?

Absolutely! In-kind donations are tax-deductible for your donors, which is a fantastic incentive for them to contribute. To help your supporters claim a tax deduction for their in-kind donations, it’s important to provide a written acknowledgment. This acknowledgment should include your nonprofit’s name, Employer Identification Number (EIN), date of receipt or service, a description of the donation or service contributed, and a statement confirming that the donor didn’t receive anything in return for their gift.

Unlike monetary donations where your organization provides the value, in-kind donations require the donor to determine the fair value of their contribution. However, you can offer a good-faith estimate to assist them. When drafting your acknowledgment letters, make sure to review the IRS guidelines to ensure compliance and convey your appreciation effectively.

Do In-Kind Donations Need to be Reported on the Form 990?

Yes, they do! Tangible in-kind donations should be recorded and reported on Form 990. Keep in mind that if your in-kind donations are valued at more than $25,000 or include art or historical artifacts, there may be additional paperwork involved. Although intangible donations like services are not mandatory to report on this form, it’s still a good idea to record them to maintain compliance with GAAP standards.

Remember to thoroughly research IRS guidelines to understand specific rules, regulations, and reporting requirements for different types of in-kind donations. For example, if you receive vehicle donations valued over $500, there are specific IRS rules you need to follow. Ensuring compliance with IRS guidelines is essential to properly accept and report in-kind contributions.

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