In-kind contributions are any donations that take a form other than cash. Sounds simple, right? Unfortunately, identifying in-kind contributions can be quite a headache for nonprofit organizations. With cash, it’s obvious when a donation is made to your organization. But when someone drops off a box of canned goods, or provides free advertising, or lets your organization rent office space at a discount…how do you capture that contribution in your financial records?
There are several basic rules to follow for recording in-kind donations. First, all in-kind contributions should be recorded at the time the donation is promised, or pledged, even if you haven’t actually received it yet. Second, all in-kind contributions should be recorded at fair market value. It can be challenging to put a price tag on certain items, but you can usually come up with a good estimate by researching the average cost of similar goods and services. Finally, pay special attention to services, as these are not always considered in-kind donations – sometimes they’re simply the work of helpful volunteers.
Some common types of in-kind contributions are listed below. And remember, even though in-kind donations can sometimes be difficult to keep track of, they can be extremely valuable to nonprofit organizations. Don’t let a little extra accounting work scare you away from in-kind contributions!
Common Types of In-Kind Contributions
Tangible Assets
Physical products or supplies, such as clothing, food, furniture, inventory, or anything else that you can physically hold. These are usually the easiest types of in-kind donations to identify.
Intangible Assets
Non-physical items of value such as patents, trademarks, royalties, or advertising. These gifts do not have any physical presence, but they still have value and must be recorded as an in-kind donation.
Use of Facilities and Other Long-Lived Assets
Free or discounted use of buildings, office space, utilities, vehicles, equipment, or other long-lived assets donated by the legal owner of the property. The entire value of the donation should be recorded as revenue when the pledge is made. For long-term agreements, the asset would be amortized over time.
Services
Donated services that either create or enhance non-financial assets (such as landscaping services that improve the value of a piece of real estate), or specialized services that would otherwise have been purchased (such accounting services to prepare the organization’s Form 990).
Bargain Sales
An inherent contribution from the sale of property, goods, or services at less than fair market value. For example, if a landowner chooses to sell property to your organization for a much lower price than they could expect get for the property on the open market.
Exceptions To Recording In-Kind Contributions
Agency Transactions
When an organization serves as a pass-through or intermediary for contributions intended for a third-party beneficiary, it is not considered an in-kind contribution. For example, a company donates pet food to a community organization that supports various local animal shelters, but the company specifies that the pet food should go to one particular shelter. Since the donation is intended for that specific shelter, the community organization is merely an intermediary, and should not record the pet food as an in-kind contribution.
General Volunteer Services
Volunteers who do not possess specialized skills, licenses, or certifications related to the service they are providing should not have their time recorded as an in-kind contribution. If an accountant prepares your organization’s Form 990 for free, that would be considered an in-kind donation of their professional services. But if that same accountant spends time serving meals at a community kitchen, or uses their financial knowledge to advise their fellow board members, it is not an in-kind service donation – it is simply volunteering.
Services That Would Not Be Otherwise Purchased
If your organization receives a donation for something that you would not have otherwise purchased, you likely do not need to record it as an in-kind contribution. For example, say your organization holds an annual fundraising auction. The live auction has always been run by volunteers, but this year a professional auction company offers to donate their auctioneering services. This company usually charges $5,000 for their services. If you would not normally spend $5,000 on an auctioneer for this event – and would otherwise stick with your usual volunteers – then you are generally not required to record it as an in-kind contribution.