How to Track and Report In-Kind Donations

7 min read

October 9th, 2024

Nonprofit donations are what keep your organization operating.

The donations your organization relies on can come in different forms including monetary donations and in-kind donations. While cash donations are essential to financial health, in-kind donations should never be overlooked. In-kind donations can provide invaluable resources to nonprofit organizations. However, in-kind donations can be challenging to manage, so a well-organized in-kind donation management, tracking, and reporting system is vital to nonprofit success.

Nonprofit donations are what keep your organization operating. The donations your organization relies on can come in different forms including monetary donations and in-kind donations. While cash donations are essential to financial health, in-kind donations should never be overlooked. In-kind donations can provide invaluable resources to nonprofit organizations. However, in-kind donations can be challenging to manage, so a well-organized in-kind donation management, tracking, and reporting system is vital to nonprofit success.

Read More: How Much Do Bookkeeping & Accounting Services for Nonprofits Cost? 

What Are In-Kind Donations?

Monetary donations include any transfer of cash funds to a nonprofit organization. Any other type of contribution belongs to the other category of donations, which is known as in-kind donations.

Examples of in-kind donations include contributions of:

• Tangible Gifts - Tangible in-kind donations include physical goods, products, and cash equivalents. They are easier to value because they usually have a standard, fair market value.
  • Goods - In-kind donations of goods can include items such as office equipment, furniture, computers, software, vehicles, clothing, food, medical supplies, personal care items, pet supplies, toys, games, school supplies, etc.
  • Cash Equivalents - Similar to cash, cash equivalents like stocks, bonds, or mutual funds are tangible assets with a cash value, but they are considered in-kind donations.
• Intangible Donations - Intangible in-kind donations include non-physical contributions which can be more difficult to value because they typically involve abstract components such as expertise, qualifications, work, time, space, or equipment use.
  • Services - Volunteering, event space, meeting space, mail service, printing or photocopy service, administrative help, or volunteering
  • Expertise - Consulting, marketing, legal advice, tax guidance, mentoring, website development, strategic planning, or other professional services
  • Intellectual Property (IP) - Patent donations, trademarking, or IP licensing

While cash donations could purchase all of the above-listed tangibles and intangibles for your organization, your nonprofit stands to benefit greatly from accepting in-kind donations because it provides your donor base with countless additional ways to help support your cause - many of which might be much more feasible. For example, a marketing firm with extra time, excess staff, and an inability to downsize might prefer to keep their staff busy by donating their services to a nonprofit in need.

How to Track In-Kind Donations in Nonprofits

Like monetary donations, in-kind donations must be thoroughly and accurately tracked and managed in nonprofits to ensure compliance, sound operations, and mission success.

Unfortunately, tracking in-kind donations is not as straightforward or simple as tracking cash donations. In-kind donation management and tracking involves valuing donations, receipting or acknowledging the donations, and reporting donations.

With the right systems and methods in place, your nonprofit can tackle in-kind donation management and learn to leverage this valuable type of donation to its advantage.

Read More: 7 Financial Reports Every Nonprofit Should Monitor

Valuing In-Kind Donations

The first challenge of tracking in-kind donations is valuing them. Since they aren't cash, they don't have a straightforward value. This means it is up to your organization to determine the value of any in-kind donations you receive. There are several methods your organization can use for value determination, such as:

• Self-Reporting - With this method of in-kind donation valuation, the donor provides an estimated value for the item(s) they are gifting. For example, a donor might drop off a box of toiletries at a shelter. Instead of the organization estimating the value of each item, a donor can provide an estimate for the whole box of items. If the number seems reasonable, it's okay for the nonprofit to use the donor's estimate. This method is only appropriate for use with lower-value in-kind donations.
• Fair Market Value (FMV) - For higher-value donations (furniture, vehicles, equipment, or stocks), it is more appropriate for organizations to determine the fair market value of an item. FMV is the price that you could sell an item for in the open market, and it is easy to determine this value for most items with a quick internet search.
• Hourly Rate - Hourly rate is the best method for valuing intangible in-kind donations like professional services. An organization can ask the donor to track their time and then use the standard hourly rate to calculate the value of the services performed on behalf of the organization.
• Intended Use - It is also important to consider the organization's intended use of in-kind donations. For example, consider items like office furniture or computers. Donations that the organization intends to use will provide more value over the long run than items that the organization intends to sell at a fundraiser.
• Appraisal - Rare items or in-kind donations that are of particularly high value should be professionally appraised. If an insurance-purpose appraisal already exists, the value noted in the policy can be used. Appraisals are typically recommended for donated items like real estate, art, or jewelry.

In some cases, the type of in-kind donation will dictate which value-determination method you should use. In other cases, it will be up to your organization to determine the most appropriate way to determine value. For tracking, accounting, and compliance purposes, be consistent with the way you value in-kind donations.

Standardizing Your Receipting Process

In valuing an in-kind donation, you handle the first step of the receipting process which acknowledges the donation and also provides your donor with the information they need for their tax reporting purposes.

In addition to valuing in-kind donations, a standardized receipting process will help ensure that you collect all of the necessary information from your donors so your records will be thorough.

Each of your organization's in-kind donation receipts should include the following details:

• Donation Date - Include the date of the donation or a range of dates if it's an intangible, ongoing donation of services.
• Donor Information - Include the donor's name, address, and contact details in addition to their tax identification number if necessary.
• Donation Description - Describe the donated goods or services in detail. Include the type of donation, what was donated, the quantity, brand, model, and any identifying information (serial numbers). Additionally, describe the item's condition.
• Donation Value - Include the donation's value and the method used for determining the value.
• Intended Use - Note whether your organization will use, sell, or exchange the item.
• Tax-Exempt Statement - The receipt should also state that your organization is tax-exempt under section 501(c)(3) of the Internal Revenue Code. You can also include a suggestion, in the statement, that the donor can consult their own tax advisor regarding the deductibility of their donation.
• Acknowledgment - Nonprofits should always send a separate acknowledgment and thank you to donors, but your receipt can also include words of gratitude.

A proper receipting process ensures your donor receives the documentation they need for their records and taxes and that your nonprofit has a thorough database for reporting and future fundraising.

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Reporting In-Kind Donations for Nonprofits

Donation reporting is essential to nonprofit regulatory compliance. In-kind donations must be reported on your organization's IRS Form 990 under Part VIII (Statement of Revenue).

Generally, in-kind donations should be reported with their fair market value assessed at the time of the donation. However, these rules can vary depending on the type of in-kind donation and reporting can be slightly complicated when, for example, donated stocks or bonds increase in value or when a donated item is sold at auction. In these cases, the value and subsequent revenue earned from an item might need to be split between the value of the original in-kind donation and the additional money its sale might have generated, with the additional funds being reported separately.

For example, a piece of artwork might have been donated with a fair market valuation of $15,000 and then sold at auction for $25,000 with $500 in sales-related costs. In this case, the nonprofit would report $15,000 as in-kind contributions, $10,000 as gross income from the fundraising event, and $15,500 as direct expenses.

The Form 990 requires that different categories of in-kind donations (donated, goods, property, stocks, auction items, services, and facility use) be reported separately and according to slightly different guidelines.

3 More Best Practices for Managing In-Kind Donations

In-kind donations are an excellent way for nonprofits to stretch their budgets and make the most of their monetary donations to maximize their impact. Consider the following additional in-kind donations best practices for better overall management.

Create Policies for In-Kind Donations

Your nonprofit should have written policies for in-kind donations. These policies should include the kinds of tangible and intangible donations you will and will not accept. Additionally, your policies should also outline procedures and rules for accepting, valuing, receipting, and recording in-kind donations.

Use Written Agreements

Written agreements are especially important and useful with high-value items and the donation of ongoing services. Written agreements help maintain positive relationships with your donors.

When high-value gifts are being received, your organization should have a written agreement that includes details like the donation's value, the purpose of the gift, the nature of the gift, and any terms. This ensures your organization is on the same page as your donor so that no misunderstandings occur and everyone's expectations are met.

Let Your Donor Base Know What You Need

You can encourage your donor base to provide you with more in-kind donations by including a wish list on your nonprofit website's giving page or by sending wish lists out in mailers or other forms of communication to your donor base.

Write and publish a list of the types of in-kind donations your organization accepts and does not accept. Be sure to include a list of the items or services that you especially need.

Make the Most of In-Kind Donations With Better a Back-Office Donation Management System

A well-run back office is essential to the successful management of a nonprofit organization. A solid back office ensures regulatory compliance with regard to tracking all types of donations. Plus, it can help you create a thorough and accurate donor database where you can keep track of monetary and non-monetary donations, values, types, receipting, donation use, donor information, and more.

Outsourced accounting services for nonprofit organizations can help you automate your back office processes with fully streamlined bookkeeping and accounting, in addition to management systems designed specifically to support nonprofit operations. With an experienced and reputable outsourced accounting partner that understands the unique needs, challenges, and opportunities of the nonprofit world, you can take your organization and its mission to the next level with a stellar in-kind donation management program and more.