What Are Nonprofit Inkind Donations?

What are in kind donations and should a nonprofit accept these? 

Inkind donations represent donations of something other than money. These donations typically consist of goods or services. 

So, why would a nonprofit accept these inkind donations? 

Well, first of all, donated services like volunteer hours can end up being the fuel of the mission. Without volunteer hours, some nonprofits would absolutely fail to exist. One obvious example of this is Meals On Wheels. This program is driven solely by the volunteers that donate their time to deliver meals to people who are home bound.  So, in this case, delivery services are being donated in the form of volunteer hours. 

Some inkind services can actually impact the budget with the same functional equivalent of a cash donation. In these cases, a nonprofit’s budget might include the expected purchase of professional services. For example, if an organization serves people by providing counseling services, then its budget would allocate funds to pay for these professional services. But, if you find a professional counselor who is willing to donate those services in lieu of being compensated for them, that is an inkind donation of service.

Here are some other examples of inkind donations of services that you may want to consider asking for, since donations like these can greatly impact the bottom line of an organization:

•  Accounting services
•  Legal services
•  Graphic design
•  Web design

Similar to gifts of services, gifts of goods can also impact your bottom line by eliminating the need to make an expected purchase and allowing you to redirect those budget dollars elsewhere. For example, if you have a large campus, you expect to spend a certain amount each year on toilet paper for your facilities. But, if someone connected with your program runs a supply company, they may be able to donate a large quantity of toilet paper that you would have otherwise had to purchase. This inkind donation of goods would allow you to spend that money on other important things besides toilet paper. 

Now that we know what inkind donations are, how do we acknowledge the receipt of an inkind donation? 

Well, let me first say that there is very important, very detailed guidance from the IRS on how we substantiate or “receipt” charitable donations. I'll refer you to IRS Publication 1771 here as a good overview, since that is a much broader topic. For now, let’s focus on the distinctions specific to inkind donations. 

The first and most important thing is…

You cannot assign a value. 

You cannot assign a dollar amount to the inkind donation. You can only state what was received and when it was received. That’s it! That’s all you can say on the actual receipt to the donor. The reasoning behind this is that the tax deductibility of that particular inkind donation is actually a complex matter that the individual donor will have to justify to the IRS using a complicated equation. Since your organization can't get involved in that, you’ll need to simply limit your receipt to what was received and when it was received. 

Okay. So how do you record those in kind donations in your accounting records? 

While you may want to track every detail of every inkind donation (gifts of goods, gifts of services, hours volunteered, etc) this data is best housed in your donor records Your donor tracking system (as opposed to your accounting system) is how you track where people give, what they like to give, how they serve, and how they connect with your organization. 

But from an accounting standpoint, you can only book income on your accounting records for goods that you would've normally purchased, but you've received inkind instead. (i.e. the toilet paper scenario) You book those goods at fair market value or what you would've paid for them on the day they were donated. Those goods are still an expense to the organization, but they’ve been offset by an inkind revenue. By recording inkind donations this way, you're still tracking what it really costs to run your program by tracking that expense, but you’re also acknowledging that the gift came by an inkind donation as opposed to a cash donation. 

Next we’ll look at how we record inkind services,  which gets a little more complicated… okay, a lot more complicated. 

Generally Accepted Accounting Principles (GAAP) include two criteria: 

1.  You can only include services that are performed by “professionals with a specialized skill”. So think doctors, accountants, lawyers, etc.
2.   You would have otherwise purchased these services to carry out your program. 

So, if the service is performed by a “professional” and you would have otherwise purchased it, then for the purposes of accounting, you value that service at its fair market value- the value you would have paid  at the time the service was received. 

Then how do you record volunteer hours if they’re not donated by “professionals”? 

Despite being very critical to a lot of nonprofits, volunteer time, regretfully, does not qualify for entry into an organization’s financial records, according to Generally Accepted Accounting Principles. 

Remember, these values we’ve discuss here for inkind donations are for internal use only. You should not publish what you book in your accounting records to your donors because, as we've talked about, you cannot assign or communicate a value of a donation to the donor. 

So there's my tips on inkind donations. I hope that you're wildly successful and receive a lot of them! They really can go a long way and be an excellent help in getting your mission accomplished.