Maximizing Impact with In-Kind Donations: A Guide for Nonprofits

Contributions form the backbone of nonprofit and charity operations. Yet, it's not solely financial support and cost that holds significance—donations in kind also hold considerable weight.

An in-gift donation denotes a contribution offered to a charity, commonly by a corporation or other entity (though individuals can contribute as well), aiding either in the charity's daily functioning or in supporting the same individuals reliant on the organization. There's a complexity beyond simply providing necessary items and ceasing involvement. In this guide, we'll discuss in-kind donations, and delve into legal and tax-related considerations, among other relevant topics.

Introduction to In-Kind Donations 

An in-kind donation represents a form of support extended to a nonprofit entity that doesn't involve direct cash donations. Rather, it takes the shape of goods or services donated in-kind, and its value is documented based on the fair market price equivalent one might typically pay for such goods or services. These contributions often stem from individuals, board members, corporations, and organizations. When contributors offer goods, services, or their time to a nonprofit organization, they actively aid and benefit the organization.

Examples of in-kind gifts or in-kind donations encompass various scenarios:

• A donor offering food to a local food bank, enabling distribution to those in need.
• Volunteering time at an animal shelter to assist with their operations.
• Offering specialized expertise, like a social worker aiding individuals with mental health needs.
• Tangible items including computer hardware/software, office furniture, medical supplies, and food.
• Intangible contributions like securities, copyrights, and patents.
• Board members providing pro bono professional services in-kind.
• Provide discounted or complimentary office space, meeting facilities, or administrative services.

Benefits of In-Kind Donations

In-kind donations can be incredibly beneficial for advancing your nonprofit strategy. Essentially, they eliminate the need to buy a good or service as it's already contributed to you free of charge!

While your nonprofit appreciates any and all donations, irrespective of external circumstances, in-kind donations prove particularly beneficial and helpful for organizations during challenging economic times.

Consider the recent crisis at the forefront of everyone's thoughts: COVID-19. The pandemic triggered an economic downturn, leaving many companies, nonprofits, and individuals in financial turmoil. In such times, many individuals may have found it easier to contribute assets they already possessed rather than delve deeper into their increasingly scarce pockets to offer cash.

In-kind donations offer abundant opportunities for both nonprofits and donors:

• Donors can contribute in-kind when giving money becomes challenging, allowing for more flexible donations.
• Donors witness the immediate impact of their in-kind donation upon giving it to a nonprofit.
• Nonprofits can promptly utilize in-kind donations without awaiting the approval or delivery of goods or services.
• Nonprofits can redistribute funds to address their most crucial needs when certain essential goods and services are provided in kind.
• In-kind donations hold the potential to be remarkably helpful for nonprofit organizations when monetary donations are scarce or limited, offering additional flexibility in financial allocation. However, not all in-kind donations carry the same weight; there are associated risks with accepting them.

Types of In-Kind Donations

When it comes to in-kind contributions, there are primarily three categories: goods, services, and expertise. Each type comes with its own advantages and considerations for your organization to weigh.

Goods

Goods encompass physical items that generous individuals donate to your cause. These items range from non-perishable foods, clothing, stationary, toys, to more substantial items like real estate or vehicles for your nonprofit's use. They can even include intangible assets such as copyrights and patents. While many organizations seek goods directly applicable to their mission, you can also leverage physical donations for auctions or garage sales to raise funds. Moreover, cash equivalents like stocks, bonds, or insurance benefits can also fall under this category, as they can be converted to cash based on your organization's policies.

Services

Services are often contributed by businesses looking to support fundraising events or specific projects. These can vary widely depending on the business and may include printing services, venue spaces, construction work, and more! Such services significantly reduce event or project costs, relieving your nonprofit from solely relying on fundraising efforts to reach its goals.

Expertise

Expertise contributions are akin to services but usually come from professionals in specialized fields. For instance, it could be an accountant assisting your administration team, a lawyer providing legal advice, or a graphic designer offering free designs. These valuable in-kind contributions effectively trim down overhead costs, sparing your nonprofit from potentially high expenses related to specialized services.

Soliciting In-Kind Donations

When it comes to seeking specific in-kind donations, nonprofits must pinpoint their requirements, establish a gift acceptance policy, engage stakeholders, and extend their request to the broader community.

Here's a comprehensive guide on the approach to requesting in-kind donations:

Identify Your Donation Needs 

Consider the operational challenges within your organization and envision the goods or services that could resolve these issues. For instance, if your office has a leaky roof, seek assistance from a reliable contractor.

Delve deeper into your programmatic needs:

• Require after-school snacks for a tutoring program? Local grocery stores might be willing to provide in-kind donations.
• Need personal protective equipment for frontline workers? Approach supply depots in your vicinity.
• Seeking high-grade Golden Oak wood polish for your antique toy museum? Check out offerings from your local hardware store.

If these needs align with your requirements, make a note for future donation requests.

Develop a Gift Acceptance Policy

Formulating clear guidelines on what donations you accept and decline is pivotal in directing your in-kind fundraising efforts.

Crafting a comprehensive gift acceptance policy provides clarity to fundraisers and donors. Refer to resources from the National Council of Nonprofits for guidance in creating an effective policy. Additionally, consider organizing auctions for gifts that aren't directly related to your programs.

Engage Your Stakeholders

Those closely associated with your organization can be valuable sources for in-kind donations or introductions to potential contributors. Inform your board members, staff, and volunteers about specific items you require, tapping into their networks for assistance.

For instance, if your office needs a window repair but no internal resource is available, a volunteer might have connections or know someone who can help. Leverage your social circle—it's larger than you might assume.

Engage the Community

Once you've reached out to close supporters, extend your appeal to local businesses and individuals in your community. Local enterprises are often receptive to providing in-kind donations due to their surplus resources.

While researching businesses, prioritize those with established corporate giving or sponsorship programs. Companies with philanthropic frameworks are more likely to respond positively to donation requests. Remember, the more businesses you approach, the greater your chances of success.

In essence, soliciting in-kind donations isn't vastly different from seeking cash gifts. However, emphasizing the impact of these donations is crucial. It's easier for donors to perceive cash as a solution to organizational problems than a physical object. Clearly outlining the potential impact will help inspire greater generosity and understanding among contributors.

Valuing and Acknowledging In-Kind Donations 

Tracking and recording in-kind donations within your non-profit organization varies depending on several factors. Nonprofits adhering to Generally Accepted Accounting Principles (GAAP) must document and report all in-kind gifts in their financial records. This standard also applies to charitable organizations subject to annual audits by independent accountants, possibly mandated by state law, lender conditions, grantors, or other key stakeholders.

Even if GAAP doesn't govern your operations and you only file Form 990, maintaining detailed financial records serves as a vital internal management, auditing, and strategic planning tool.

Recognition and Valuation of In-Kind Donations

In-kind donations should be logged when donors provide them to your organization, either in the period received and accepted, or more frequently depending on volume, and at least annually. These donations are recorded at fair value, which is defined by FASB as the price in an orderly transaction between market participants.

Valuation methods vary:

• For products, determine their open market value had they not been donated.
• Track hours of professional services donated.
• Engage with donors to assess the value of in-kind services.

Recording Donor In-Kind Donations

Recording in-kind donations involves setting up a distinct revenue account while the expense side corresponds to its functional expense account. This approach aligns with both FASB and IRS requirements, ensuring proper revenue and expense reporting.

Acknowledgment of In-Kind Donations from Donors

Upon receiving in-kind donations from other organizations, it's imperative to acknowledge and express gratitude while fulfilling obligations per IRS guidelines:

• Donors must possess a bank record or written acknowledgment from the nonprofit for claiming tax deductions.
• A written acknowledgment is mandatory for contributions of $250 or more.

Elements to include in your donor acknowledgment:

• Designate an individual (CFO, CEO, or department head) to acknowledge in-kind donations.
• Timely communication within 30 days or upon receipt based on volume.
• Details must include nonprofit's tax-exempt status, donation date, description or value, and a declaration of services or goods exchanged if applicable.

Using a donor database or CRM system aids in managing receipts and ensuring appropriate and timely acknowledgments are issued.

Exploring Grant Opportunities

Non-profits seek grants from various sources like government bodies at local, state, and federal levels, alongside private and public foundations. Typically, grants received need not be repaid, contingent upon your organization's charitable/non-profit status. Gaining grant approval often requires meeting specific eligibility criteria.

Understanding Grant Diversity

Grants can be earmarked for particular sectors, locations, or programming styles, necessitating nonprofits to identify and apply for grants aligning with their mission.

Types of Grant-Giving Organizations

• Governments
• Public charities
• Community foundations
• Family foundations
• Private foundations

Requirements for grants vary between organizations and countries where the nonprofit is registered.

Weighing the Pros and Cons

Advantages of Grants

• Enable large-scale societal impact
• Enhance credibility with government agency funding
• Typically don't require repayment if spent as intended

Disadvantages of Grants

• Time-consuming process, from skill development to fund receipt
• Specific conditions attached, including spending regulations and reporting requirements
• Designed for short-term purposes, not sustainable revenue streams

Considerations Before Applying

Grants can be enticing for nonprofits but necessitate careful consideration before application.

For nonprofits based in the United States, government grants can be found through a searchable online database. Foundation Center provides a comprehensive directory and valuable free resources.

Building Connections through Corporate Collaborations

Seeking grant opportunities extends to corporate partnerships, presenting an additional pathway. Numerous corporations maintain foundations or social responsibility initiatives offering grants to nonprofit organizations. Corporations typically endorse causes resonating with their business ethics or community concerns.

Generating Revenue from Membership Fees and Service Charges

Nonprofits have the opportunity to generate income through membership fees and service charges. This financial support is contributed by individuals or organizations directly benefiting from the nonprofit's initiatives and wishing to contribute to its mission.

Memberships not only offer a consistent income stream but also foster a committed community aligned with the nonprofit's cause. For instance, a study conducted by the National Center for Charitable Statistics revealed that approximately 59% of revenue for public charities is derived from program service fees, encompassing membership dues among other sources.

Raising Money through Events and Campaigns

Non-profits often organize different events and crowdfunding drives to gather funds. These events allow non-profits to catch the public eye, connect with their community, and encourage donations. Although organizing these events takes a lot of planning and resources, they often bring in a good amount of financial support when done well.

Legal and Tax Implications of an In-Kind Donation

Properly documenting and reporting in-kind contributions is often a legal requirement, as certain gifts must comply with GAAP standards and be disclosed on Form 990 alongside your organization's federal tax return. Failure to meet these regulations could lead to penalties, potentially involving fines.

Moreover, accurate reporting safeguards against misrepresentation on financial statements, preventing any misleading portrayal of success or concealing administrative expenses to justify unnecessary spending—practices followed by unscrupulous entities.

Additionally, recording in-kind contributions serves a crucial role in organizational management. Understanding the value of received goods or services helps your organization comprehend their actual worth, ensuring preparedness in case such contributions, like the donation of office space or legal services, are unexpectedly withdrawn.

Managing and Utilizing In-Kind Donations 

To ensure the effective utilization of in-kind donations, establish a structured approach for managing and distributing them:

Designate Responsibility

Appoint a staff member or volunteer to oversee the management and proper allocation of in-kind donations.

Arrange Storage

Create a designated space to store in-kind donations and develop an organizational system for their storage.

Track Distribution

Maintain detailed records of how donated items or services are utilized, specifying the programs or departments benefiting from them.

Evaluate Impact

Consistently assess the impact of in-kind donations on your organization's mission and objectives, adapting your wish list and priorities accordingly.

Monitor Expiry Dates

For perishable items, ensure they are utilized before their expiration dates to prevent wastage.

Building Relationships with In-Kind Donors 

Building long-term relationships with in-kind donors is pivotal for ensuring a consistent flow of resources for your non-profit organization:

Express Gratitude and Be Candid

Continuously acknowledge donors for their support, both publicly and privately. This includes sending appreciation notes, being transparent, recognizing donors on your website or during events, and narrating stories about how their contributions make an impact. 

Maintain Donor Engagement

Keep donors updated on the utilization of their contributions and share updates on your organization's achievements.

Encourage Recurring Contributions

Prompt donors about your ongoing needs and invite them to contribute with a product or service again in the future.

Provide Volunteer Opportunities

Engage donors by offering them opportunities to volunteer their time or skills with your organization.

Challenges and Solutions in Handling In-Kind Donations 

Receiving in-kind donations can sometimes pose challenges for nonprofits. Here are some hurdles often encountered and ways to overcome them:

Handling Logistics

Dealing with the storage and management of physical donations, especially large items, can be quite tricky. Solution: Establish smart inventory systems and efficient distribution methods to handle these donations smoothly.

Valuation Concerns

Determining the value of certain donations, particularly unique items or services, can be tough for accounting purposes. Solution: Seek expert advice or use guidelines available through the IRS to fairly assess their worth.

Legal Compliance

Staying compliant with tax laws related to in-kind donations can be complex. Solution: Keep updated on relevant laws, seek legal guidance when needed, and maintain accurate records of all donations.

Matching Donations to Needs

Sometimes, donated items might not exactly match the organization's immediate needs, leading to surplus or unusable items. Solution: Clearly communicate your organization's requirements to potential donors to better align donations with your needs.

Recognition and Appreciation

Properly acknowledging and appreciating in-kind donors can sometimes be a challenge, affecting donor relationships. Solution: Develop a structured approach for expressing gratitude, including personalized notes and public recognition where you accept the in-kind gift and thank donors personally.

Sustainability in Support

Relying solely on a sporadic in-kind contribution might not ensure a consistent flow of essential resources. Solution: Create strategies to find diverse donation sources in the form of fundraising, and build long-term relationships with donors for ongoing support.

Case Studies: Successful In-Kind Donation Campaigns 

Running a charity campaign may seem like following the same old formula, but sticking to the usual can make your nonprofit appear a bit dull and less imaginative. This might even affect the donations you get.

Organizing an in-gift charity campaign is a lot of work. Figuring out what kind of fundraiser to run is crucial. If you're stuck finding a good idea, going through successful case studies of existing campaigns can be a game-changer. Take the best bits from different campaigns, and you can spice up your own foundation events.

UNICEF and Sweden's Education Reform Initiative in Cambodia

UNICEF, a worldwide advocate for children's rights, joins forces with Sweden in a 8.3 million initiative to revamp education in Cambodia. The goal is to improve education quality and make it more accessible for children across the nation.

#TeamSeas: Ocean Cleanup Crusaders

Remember MrBeast and Mark Rober from YouTube? They're not just about viral videos; they're into charity too. #TeamSeas? That’s their ocean cleanup gig. They turned $1 into removing a pound of ocean trash. Result? 32 million pounds of trash gone! And it all went down with a massive social media wave.

Guardian and Observer's Climate Justice Appeal

So, The Guardian and Observer do this cool thing every year—they team up for charity appeals. Last year, it was all about climate justice and helping the underdogs. Their secret sauce? Real stories that hit home and a big "Let's Do This!" vibe. They nearly hit a million bucks—it was all over the place, and it worked!

Break the Cage: Animal Liberation Mission

Ever heard of International Animal Rescue? They're all about setting brown bears free. Their gig is pretty slick, offering tons of ways to help—sign petitions, snag some cool swag, even adopt an animal. It’s like a campaign buffet with a side of raising awareness for furry friends!

Black Lives Matter (BLM) Activism

The BLM movement stands as a constant reminder of how issues like racism and inequality need ongoing attention. Even though BLM isn’t all about fundraising, its impact inspires many to raise funds for black communities. Plus, the movement’s social media game, especially the #BLM tag, spreads awareness like wildfire.

Movember: Mustache for a Cause!

You know Movember? That month when guys grow mustaches for men's health? It’s a global gig now, raising awareness for things like cancer and mental health. Last year, they pulled in a whopping $100 million and got nearly 400,000 folks involved. That’s some serious health hustle!

Paws on Parade: Unleashing Canine Charity

The PAWS Chicago 5K Walk/Run is a dog lover's haven, attracting over 7,000 people and 3,000 pets annually! It's a race divided into running and walking courses, where the latter is exclusively for our furry pals. Participants can join as individuals or teams, kickstarting the event with an address from founder Paula Fasseas. It's a day filled with races, pet parades, and accolades for top fundraising teams, all while aiming to reach their fundraising goal displayed on their registration page!

Red Nose Day: A Global Charitable Phenomenon

Red Nose Day, Comic Relief's big annual charity drive, started with a response to the Ethiopian famine and now helps various causes. In the UK, it rakes in about £40 million in one night, while in the US, it gathers millions. Red noses sold in stores not only create buzz but also show incredible community support for Comic Relief's missions.

Walmart and The Salvation Army: Angel Tree Collaboration

During the festive season, The Salvation Army collaborates with Walmart for the heartwarming Angel Tree program. Just pick a tag from the tree, purchase the listed items, and return them- or, visit their Spark Good registry online for a similar experience. This cherished 40-year bond between Walmart and The Salvation Army brings together the ease of shopping at Walmart with the spirit of giving during the holidays, offering diverse gift choices and an online shopping convenience.

Northwestern University's 'We Will' Campaign

Northwestern's "We Will" Campaign, launched in 2014, aimed initially for $3.75 billion. Surpassing this in two years, the target was raised to $5 billion and ended in 2021, amassing an impressive $6.1 billion. The fundraising donors supported research, scholarships, and more, receiving personalized thank-you notes and impact reports. Northwestern University effectively engaged donors without overwhelming them, using tailored communication via emails, mail, and events, achieving their most successful fundraising endeavor yet. 

Technology for In-Kind Donation Management

Technology offers various methods to simplify donation tracking:

Electronic Transaction Processing

Platforms like Stripe and Paypal provide secure online donation forms, processing payments for a fee. These platforms integrate with software systems, reducing errors by transferring data automatically, and minimizing manual entry requirements.

Automated Receipt Generation

Utilizing donation software and payment platforms automates the creation of acknowledgment letters, fulfilling compliance needs by including essential information and maintaining tax-exempt status.

Online Fundraising Platforms

Services like GoFundMe facilitate donation collection and crowdfunding campaigns, deducting payment processing fees per donation instead of platform fees. These platforms offer tools like fundraising thermometers, social media integrations, and analytics for assessing campaign success.

Software Integration

Modern nonprofit donation software seamlessly integrates with accounting and marketing apps, saving time and cutting expenses compared to older, separate systems.

Analytics and Reporting

Fundraising management software allows custom report generation using relevant financial metrics tailored to an organization's needs.

Association Management Software

Donor management tools like Paybee provide donation tracking and fundraising features. 

Maximizing Impact with In-Kind Donations: Wrap-Up

Sure, it's really important to check how much impact those in-kind contributions will have. Taking in goods from donors should be about making sure they help move your mission forward.

Before saying yes to any donation, take a good look to see if it lines up with what your organization stands for, and check out how much it will help. Make a simple policy that explains what kinds of gifts you're okay with and the limits for what you'll take, and make sure your donors know about it too. If a donation doesn't make a big difference to what you're doing, it might be best to say no.

FAQs on In-Kind Donations 

The top source for guidance on recording, acknowledging, and reporting in-kind donations is your organization's tax expert. But don't worry, this FAQ offers a handy overview of in-kind contributions and their requisites without you having to search through multiple posts on Google.

Are in-kind donations an eligible candidate for tax deductions?

Your donors should consult their tax advisors, but often, in-kind donations qualify for tax deductions.

Are in-kind donations counted as revenue?

A donation's fair market value usually gets logged as revenue.

How do I document in-kind donations for my nonprofit?

First things first, make sure to send a receipt to your donor!

You or your accountant must also record the in-kind donation in your accounting software at the donor's stated fair market value. For goods, this value is determined by what the nonprofit would have paid had they purchased the items, typically provided by the donor.

Contributed services are included in financial statements if they:

• Create or enhance non-financial assets or require specialized skills
• Are provided by individuals possessing those skills
• Would usually require payment if not donated

How should I acknowledge and accept in-kind donations for my nonprofit?

Send the donor an acknowledgment including your tax ID number, a description of the donated goods/services, and the date you received them.

Ensure the letter confirms that donors received no substantial goods or services in return for their contribution. Typically, avoid assigning a valuation to the goods or services—donors are responsible for that.

How do I report in-kind donations on Form 990?

Valuing in-kind donations can be tricky, but they might be eligible for tax deductions for donors.

In-kind contributions of property (not services) should be reported on the 990. According to the IRS, these go on Part VIII, line 1g, on line 1 of Parts II and III of Schedule A, in Part II of Schedule B, and in column (c) of Schedule M, if applicable. The value of donated services appears as reconciling items on the 990.

What’s the difference between an in-kind gift and pro bono service for a nonprofit?

For nonprofits, “pro bono” is just lingo for an in-kind donation of professional services. It's when a professional offers their services for the public good instead of their usual fees.

How do I determine the value of an in-kind gift for my nonprofit?

Donors usually provide a fair market value, but if not, some research might be needed.

Consider what your organization would have paid for goods at retail or inquire about the hourly rate or charges for services if someone donated their professional skills.