What Are In-Kind Donations? Everything You Need To Know

When you are involved with fundraising for a charity, you’ll know that donations come in many shapes and sizes. This includes in-kind donations. Today, we take a look at what this type of benefactor bequest entails and how a nonprofit or charity organization should record it. 

What is An In-Kind Donation Exactly? 

The term 'in-kind donation' refers to a contribution to a charity that is anything other than money. This includes professional services, labor, shared expertise, as well as physical goods. These donations can be made by individuals, as well as businesses and corporations. This includes: 

Goods or Property

For instance, tangible items such as office furniture, computer hardware and software, foodstuffs, etc., are included. However, intangible assets like copyrights and patents are also included. 

Professional Services

Such as legal support, accounting services, web design assistance, social media marketing, videography or photography, copywriting or editing, etc. 

In this case, the term ‘pro bono’ is synonymous with ‘in kind’.

Asset Creation

For example, when a group of volunteers comes together to build a structure, create a garden, clean a space, etc. 

The benefits of this type of charitable contribution include: 

• Access to goods and services outside a nonprofit organization’s budget. 
• Freed-up resources that can be put to good use elsewhere. 
• Operational support (e.g., thrift stores, food pantries, and shelters dependent on various small items, food, bedding, etc.).
• Ease of donation for businesses (no need to free up cash flow). 
• More significant donations from certain bigger enterprises (their buying power allows them to buy cheaply, so they can donate more goods than they would be able to give in terms of money). 

5 Important Things Every NPO Should Realize About In-Kind Donations

It May Not Always be Something Your Organization Needs

Although all donations are welcome, you may find that specific in-kind contributions are not suited to your organization’s particular needs. 

Sometimes, you must deal with items that aren't part of your operational strategy. This may also cause issues when you need to find storage space. As such, it helps to tailor a policy regarding the acceptance of in-kind donations. 

This type of gift acceptance document should always be very respectful and professional. Depending on the nature of your charity, it could include a list of suitable gifts and a list of donations that you cannot accept. Take care to explain why specific in-kind donations are not suitable. Also, stipulate how gifts will be recognized. 

TOP TIP: If you find yourself with some in-kind donations that your organization does not have a use for, an online auction might be a good way to go. This way, you can put the items up for bid and generate some cash income for your nonprofit organization. With an all-in-one auction management solution, it's easy to build your own auction website within minutes and accept cash donations online. 

Being Proactive in Terms of In-Kind Donations Helps a Lot

If you want to ensure that your organization receives the right kind of in-kind donations, you need to be proactive. List the goods and services that would be welcome and find likely businesses and/or individuals who can provide them. 

In-kind donations Need to Be Valued

Your nonprofit organizations should record any in-kind donations when you receive them. These types of donations will be recorded at 'fair value' (the price it would fetch on the open market between willing buyers and sellers). 

You can look up the cost of goods like computers. You can also track and value services provided according to the donor's hourly rate. 

Acknowledge In-Kind Donations

Aside from the fact that it’s just polite to thank your donors for any contribution they make to your organization, there are also certain legal obligations that you need to fulfill. 

A donor will need an official letter to claim a tax deduction. To this end, a gift acknowledgment should include a few important things. 

This includes: 

• An official letterhead that states all of your NPO's registration information, etc. 
• Precise date of the donation receipt. 
• A description of the goods or services donated and the assigned value thereof. 

It helps to have a template on hand that the person in charge of donation receipts may use when they respond. For instance: 

Capture It Correctly in Your Financial Records

Always liaise with your financial services provider when capturing in-kind donations. Depending on the nature of the gift, there may be several factors at play, even if it does not affect your income and expenses in any tangible way. 

For instance, if you receive pro bono social media assistance, you would capture the revenue as 'gifts in kind - services', and the expense would be 'professional services'. The revenue will equal the expense, so there won't be a net impact on your books, but it is a tax requirement nonetheless. 

Conclusion on In-Kind Donations

In-kind donations are contributions in the form of anything other than cash, e.g. pro bono services, or physical goods. There are many benefits to this type of donation, but you do need to manage it correctly. 

Tailor a policy with regard to in-kind donation acceptance, and be proactive in seeking out the right types. Value and acknowledge in-kind donations, capture them correctly in your financial records, and that’s that!