Jun 8, 2023
Everything You Need to Know About In-Kind Donations
Schools, foundations, and nonprofits are constantly on the lookout for donations to help them achieve their goals. An in-kind donation is one type of contribution that can have a great benefit for nonprofit organizations.
In-kind donations can be more flexible and adaptable than monetary donations. While financial contributions are valuable, in-kind donations provide your nonprofit with goods and services that serve your immediate needs. They provide cost savings, expand services, foster community engagement, and offer flexibility in meeting your organization’s operational requirements.
When individuals, businesses, or other organizations contribute donations, they become active participants in your mission. This engagement can lead to long-term collaborations, volunteer opportunities, and increased awareness of the work your organization is pioneering.
Without the support of in-kind donations, your nonprofit could face significant challenges in fulfilling its missions and delivering services to those in need.
Let’s take a look at what in-kind donations mean so you can knowledgeably accept and use them.
What is an in-kind donation?
An in-kind donation is a non-cash gift made to a nonprofit organization. These contributions can be made in the form of time, services, expertise, and goods, often coming from large businesses but also can come from individuals.
Because in-kind donations don’t come in the form of physical cash, they can be confusing when it comes to recordkeeping. These donations are recorded as monetary values, determined by the fair market price you’d otherwise pay for the goods or service you received. This value is recorded on your financial statements.
While in-kind contributions are an important source of nonprofit revenue, you must ensure that the in-kind donations you’re receiving are relevant to your organization’s mission.
Examples of in-kind donations
What qualifies as an in-kind donation? There are various types of in-kind donations, some of which may be more useful for your nonprofit than others. Here’s a closer look at several in-kind donation examples:
A donor may contribute an in-kind donation in the form of goods, which can include:
- Office equipment
- Building materials
- Alcohol and beer
Essentially, a goods donation involves a tangible item that the donor gives to the organization free of charge. You can use these items in your day-to-day operations or at an event.
Goods donations provide vital resources to your organization, ensuring you have access to much-needed items for continued operation. They help alleviate the financial burden from your nonprofit, allowing you to focus on your more critical needs.
Donated goods also promote sustainability by reducing waste and encouraging the reuse of items that might otherwise end up in landfills. They help foster a sense of empathy and community, as donors directly contribute to improving the lives of others, creating a positive impact, and promoting social cohesion.
An expertise donation refers to when a professional lends advice to an organization for free. This advice could include tax advice, event planning, or another form of knowledge. Most often, corporations will offer in-kind expertise donations by allowing nonprofits to access their services at no or reduced cost. In some instances, a discount can be written off by the donor, too.
These donations offer a valuable resource that may not be easily accessible or affordable for your organization. Expertise in areas such as marketing, technology, or legal advice can greatly enhance your operations and effectiveness. In-kind expertise donations foster knowledge sharing and collaboration between professionals, promoting innovation and problem-solving.
These donations refer to donations made by contributing time through volunteer work. A nonprofit may accept professional service donations for fundraisers and drives, where they ask professionals to complete tasks like printing brochures, setting up events, running AV, licensed bartending, and more.
Service donations provide essential support to nonprofits, allowing your organization to deliver programs and services more effectively. They take the weight off of your nonprofit’s resources, enabling you to spread your budget more effectively.
Service donations also foster relationships between your nonprofit and your local community by creating a sense of engagement through human interaction.
Pros and cons of in-kind donations
There are varying pros and cons to in-kind donations. To make it simple for you, we have broken them down into the following lists so you can easily weigh the advantages and downsides.
Pros of in-kind donations
Accepting in-kind donations enables you to:
- Allow for growth: Receiving in-kind donations can take your organization to the next level. Whether it be supplies, computers, or a car that helps you get closer to achieving your goals, in-kind donations often have immediate applications, which money can’t provide.
- Create connections: In-kind contributions allow you to build relationships with your donors, which can lead to monetary giving, a corporate walk team, or more in the future.
- Make bigger impacts: Often, in-kind donations can make more of a difference for smaller nonprofits. Compared to receiving a $5,000 donation, a free company car may help a newer organization work toward its goals faster.
- Reduce operating costs: An in-kind donation can help you have access to the resources you need at lower costs. For instance, paying for tax services may be more expensive than getting an accounting firm to provide them for free to you in the form of an in-kind donation.
Cons of in-kind donations
Keep in mind that in-kind donations pose some considerations, as they:
- Can lack relevancy: There are times when you may receive an in-kind donation that doesn’t align with your goals. An example would be having someone offer to make you a website for free even though you already have an in-house website designer who’s working on it.
- May require storage capacity: When it comes to goods, you’ll need to have the space to store them. If you’re a new nonprofit with limited office space, receiving large amounts of clothing or food could force you to pay for storage options you can’t afford.
Tips for accepting in-kind donations
It’s imperative to have procedures in place for in-kind donations. As a result, your organization can quickly filter out irrelevant in-kind donations and accept ones that will make the most sense for your mission. Check out a few ways to ensure the in-kind donations you receive are legitimate and in your best interests:
- Donation lists: By publishing lists of in-kind donations your nonprofit needs, you can ensure donors only contribute items or services that make sense for your intentions as an organization.
- Agreements: A written agreement is important when you start receiving considerable donations. This agreement can cover the donation’s value, the “contract” between your organization and the donor, the purpose and nature of the gift, and more to ensure both parties are on the same page and expectations are met.
- A gift acknowledgment form: Show your donors you’re appreciative of their donations and explain the value they’ve brought to your nonprofit. This way, you can encourage them to make donations in the future. They will also need an acknowledgement for their own bookkeeping, and you will need to record it for your annual report and audit.
In-kind donation frequently asked questions
Because accepting in-kind donations can be tricky, you can check out a few FAQs to ensure you fully understand them:
How do nonprofits “ask” for in-kind donations?
There are many ways to ask for in-kind donations. Start by adding a section on your fundraising website that mentions the types of in-kind donations you accept. If you send out a newsletter, you can include relevant information there, as well. For nonprofits that already have strong relationships with donors, it can be as simple as asking a donor to consider providing an in-kind contribution in lieu of their typical cash donation.
Can you write off in-kind donations?
Generally, donors can deduct in-kind donations, as they’re considered charitable donations just like cash contributions.
What is the correct way to acknowledge an in-kind donation?
Recognizing an in-kind donation shows donors you’ve received the gift so they can claim the donation on their taxes. This can be done by sending them a donation receipt or email to confirm the transaction.
How do I work out the value of an in-kind donation?
Calculate the value of an in-kind donation by comparing the fair market sale price of similar items online or asking the donor to provide that information.
Do I record in-kind donations as revenue?
Yes, you must record the fair market value (FMV) of the donation as revenue for your own audit and annual report.
Learn More About GiveSmart
Now that you know how valuable in-kind donations are to donor-driven organizations, you may want to begin sourcing them. GiveSmart is the industry’s top fundraising software, helping you raise more money with less stress. At GiveSmart, we assist nonprofit organizations by providing technology that helps you create positive change. GiveSmart is designed to fit your organization’s needs, giving you support, constant innovation, insights, and more.
Find out how GiveSmart can be your long-term partner today. Contact us for more information!