Please note that the following article is not meant to be taken as tax or financial advice. Everyone's situation is different, and your tax advisor should ultimately be consulted before making decisions.
In-kind donations are an important part of the mutually-beneficial relationship between many nonprofit organizations and businesses. Through in-kind gifts, nonprofits receive essential goods, products, and services, while businesses reap the rewards of corporate philanthropy—from increased customer loyalty to tax deductions.
However, while everyone may enjoy receiving (or giving!) in-kind donations, the task of tracking, recording, and reporting them is a chore that few are excited for. Accounting for in-kind gifts may be important for internal operations and tax purposes, but you’re among good company if part of you dreads this process.
To make things a little easier, we’ve created this short guide for nonprofits and businesses to get their records in order and simplify in-kind donation tracking. We’ll review the following topics:
Ready to learn how to effectively track, report, and manage your in-kind gifts? Let’s dive in with a brief overview of in-kind donations.
What Are In-Kind Donations?
To take a page from our Guide to In-Kind Donations, “in-kind donations are just non-cash contributions… This typically includes goods such as your own company’s products, gift certificates, supplies, or equipment.”
For example, say that a wine sampling company decides to package up its extra inventory and create gift baskets for local nonprofit raffle fundraisers. Alternatively, a theme park could donate “experiences” by providing special day passes as prizes for charitable programs.
While these two scenarios may seem to fall under very different umbrellas of corporate philanthropy, they are both completely valid and effective examples of real-life in-kind donation programs that the DonationMatch team counts among our corporate success stories.
To clarify things a bit more, let’s briefly dive into the different kinds of in-kind gifts, as well as what doesn’t qualify as in-kind giving.
Types of In-Kind Donations to Nonprofits
Describing in-kind donations as simply “non-cash contributions” leaves a good bit of wiggle room for a variety of different gifts that a business might donate to a nonprofit, including:
Goods. These are tangible products. One of the most desired types of donations by events, DonationMatch often enables the distribution of product samples or merchandise from brands to attendees at nonprofit events.
Experiences. Experiential donations are typically tickets or passes that are redeemable for engaging experiences, such as a day at an amusement park, a hot air balloon ride, or even a destination vacation.
Services. The intangible donations of time and labor also qualify as in-kind giving. From pro bono legal work to free social media marketing consultation, the donation of professional services is another valuable form of corporate philanthropy.
While they are all very different and benefit both charities and companies in unique ways, these donations are all common and important forms of in-kind donations. So, what donations fail to qualify as in-kind gifts?
What Is Not Considered an In-Kind Donation?
Not every non-monetary product, service, or experience transferred from a donating organization to a nonprofit necessarily meets IRS requirements of an in-kind donation. In particular, the following gifts are disqualified from being officially reported as in-kind donations by the IRS:
Volunteers hours (unless the volunteer is performing a specialized skill)
Donations with stipulations on how they will be used
Gifts that have been earmarked for specific individuals or other organizations
Donations given in exchange for something that exceeds their fair market value (FMV)
Of course, these charitable gestures provide their own advantages for the nonprofits and businesses that use them. For example, creating a volunteer grant program and incentivizing employees to donate their time to noble missions is a great way to increase employee engagement and positively market your brand.
That being said, at least for your own records and for taxation purposes, these donations should not be tracked, accounted, or reported as official in-kind donations.
Why Should You Track In-Kind Donations?
In-Kind Donation Tracking for Nonprofits
For nonprofits, tracking what donations are given to the organization is an essential part of following Generally Accepted Accounting Principles (GAAP). GAAP is a set of official standards by which most nonprofit and for-profit organizations publish their financial statements. On the nonprofit side of things, this:
Allows donors and donating organizations to understand and share their impact on the nonprofit and the nonprofit’s mission.
Enables grantmakers and other funding organizations to assess the nonprofit’s qualifications for certain grants, funds, and awarded gifts.
Enables government entities, particularly the IRS, to assess the nonprofit’s qualifications for tax-exempt status.
Additionally, knowing the resources you have at your disposal is an important part of internal management and acknowledging gifts. Beyond showing gratitude to donors, gift acknowledgments are essential documents that donors and donating corporations need to present on their taxes to be eligible for tax deductibility. They must include:
The name of the donor or donating entity
The name of the nonprofit organization
A declaration of the nonprofit’s EIN and 501(c)(3) tax-exempt status
The date of the gift
A description of the gift itself
Without a robust and organized in-kind donation tracking system, it would be impossible to create these acknowledgments, as well as complete the other important reporting tasks that we’ve named. For nonprofits to manage this process effectively, technology can be an incredibly valuable resource.
In particular, a dedicated in-kind donation platform is an especially useful tool for in-kind gift tracking. This will not only allow you to easily find and submit requests to corporate donors, but also automatically record dates, names, times, values, descriptions, and detailed reports of in-kind gifts that can be easily accessed and published in a matter of seconds.
In-Kind Donation Tracking for Businesses
For businesses, tracking the movement, amount, and type of in-kind donations can affect operations on multiple levels. For one thing, knowing the precise impact that you’ve had on your nonprofit partner can go a long way in cultivating an effective cause marketing campaign.
Cause marketing is a form of marketing performed by for-profit businesses through their collaborations with nonprofit organizations. From engaging in matching gifts programs to hosting robust in-kind donation programs, corporate philanthropy and charitable donations can strengthen your business by:
Boosting customer loyalty through increased trust and respect in your brand.
Creating unique tax deductions for your business to take advantage of.
Raising brand awareness through the public promotion of your philanthropy.
By knowing the details of the donations you’ve sent to your nonprofit partners, you can more precisely and effectively market your philanthropic efforts, manage your nonprofit partnerships, and regulate your internal operations.
Of course, you can’t forget about taxes!
As we mentioned, the tax-deductibility of in-kind gifts is another big reason to carefully track your in-kind donations to nonprofit partners. Depending on the filing status of your business, you may be eligible for a range of different deductions, such as:
A 50% to 60% deduction ceiling for sole proprietors, S corporations, and some other businesses and pass-through entities, deducted as business expenses
A 10% to 25% deduction ceiling for C corporations, deducted from federal income tax returns
Just like nonprofit organizations, businesses can reap a host of benefits by properly tracking and organizing their in-kind contributions, a process that can also be far more easily managed with the right technology.
A powerful corporate giving platform can help streamline and enhance your corporate philanthropy initiatives. For example, DonationMatch boasts a powerful in-kind giving platform that can help you to easily find the right, qualified nonprofit partners among thousands of potential organizations, as well as track, manage, and create custom reports on key pieces of data throughout your in-kind partnership program.
How Are In-Kind Donations Accounted for & Reported?
How Nonprofits Account for In-Kind Donations
When a nonprofit accepts an in-kind donation, the organization must record and report its fair market value (FMV) as contributed revenue to the organization. The process of doing so depends on the type of in-kind gift, for example:
For goods and products, the nonprofit could ask the donor for the open market value or retail price of the items at the time of the donation.
For professional services, the nonprofit could estimate the hourly rate of the specialized work being provided and multiply that by hours donated.
For experiences, the nonprofit could find out what the open market value or potential cost of the ticket or experience is at the time of the donation.
This information allows nonprofits to report (according to GAAP standards) the total organization’s annual revenue and value of contributions received. This is an important factor for financial reporting, auditing, grant applications, and a number of other financial and legal functions.
On top of that, reporting the FMV of tangible in-kind donations is a requirement for completing Form 990, the document that determines the tax-exempt status of nonprofit organizations.
How Businesses Account for In-Kind Donations
Companies have the choice to report their in-kind contributions as either an operational/marketing expense or as a deductible charitable donation. Both options have their own potential tax deductions for your business, though reporting your gifts as donations has the added benefit of bolstering your reported totals for charitable giving and improving your public image.
Your business will need to determine the fair market value of your in-kind donations; providing this to recipient nonprofits will save them effort as well. For many goods and products, this will often be the same as their open market retail value. However, for services donated, the expense can vary and is usually closer to what your business actually spent, as personal time can’t be deducted but employee wages can be.
Once you’ve determined the value of your in-kind donations, you will fill out the proper IRS documentation based on your filing status. For instance:
Sole proprietors, S corporations, and pass-through entities fill out Form 1040, Schedule A
C corporations and most other businesses fill out Form 1040, Schedule C
If your tax-deductible value is between $500 to $5,000, complete Form 8283 Section A
If your tax-deductible value exceeds $5,000, complete Form 8283 Section B and perform an appraisal
If your tax-deductible value exceeds $500,000, complete Form 8283 Section B and attach an official appraisal to the form
For more information on this subject, check out the DonationMatch tax deduction guide, contact your tax advisor, or visit the official IRS page on reporting charitable contributions.
What’s the Best Tool to Track In-Kind Donations?
Using the right software or platform to track your in-kind donations can make a huge impact on the speed, accuracy, and efficiency with which you manage your in-kind giving program and fill out your financial reports.
Of course, getting a professional tax advisor is ideal for navigating the annual in-kind accounting process. But on a day-to-day level, it’s important to have a dedicated tool in place that is tailor-made to manage, record, and keep track of your in-kind gifts.
DonationMatch: The Only True In-Kind Giving Platform
While many CSR software solutions deal very generally with the ins and outs of in-kind donations, DonationMatch is the only true, dedicated in-kind giving platform that tracks and helps manage every step of the in-kind donation process between businesses and nonprofits.
Take a look at a handful of the intuitive features offered by our intelligent in-kind giving and matchmaking tools:
Proactive, custom search portals that allow you to finetune your giving parameters to enable the perfect nonprofit partners and giving opportunities to qualify
True automation of the entire giving process, streamlining everything from the request screening process to secure e-delivery and tracking your donations
Robust data tracking and reporting, providing you with up-to-date, key metrics and information about your in-kind donations, events, and nonprofit partnerships
Without our turnkey in-kind platform, you can effortlessly generate custom reports, track key performance indicators, and easily access the most important metrics and data you need to report and account for your in-kind donations.
Additional Resources
Recording, reporting, and accounting for your in-kind donations can feel like an impossible series of hoops to jump through. Fortunately, these insights and tools should help your organization to more confidently balance your books and keep track of your in-kind donations.
Eager to learn more about in-kind donations and tax reporting? Check out our other resources:
In-Kind Donations and Tax Deductions 101 | DonationMatch. Explore the intricacies of tax reporting and potential tax deductions for in-kind gifts.
In-Kind Donations: Everything Your Organization Should Know. Learn everything there is to know about in-kind giving with our definitive guide to in-kind donations.
6 Nonprofit Tax Tips for Reporting In-Kind Donations. Save money and perfect the tax reporting process for your in-kind donations with these essential tax tips.
