When you think about donations, you probably think about cash contributions that help you raise more funds.
There’s another type that can be effective in a different way, and these can come in the form of in-kind donations.
Almost every organization will have received in-kind donations. Until now, you may have simply waited for these to come to you, rather than actively reaching out for them.
In-kind donations can help your organization cut costs and make better use of the funds you raise, but they’re often overlooked as a form of fundraising.
This is particularly true for in-kind donations linked to fundraising events and capital projects. The more donations you can secure for helping deliver a fundraising event or pay for construction work, the less you’ll need to dip into your organization’s budget or seek a substantial amount of grant funding. And this can free up extra funds that can be used elsewhere to further your cause.
In-kind donations can be attractive for donors too since they’re a viable alternative to donating money and can have a significant impact on your cause. They’re an easy way for donors to feel they’re making a difference to your mission, even if they don’t have the financial means to support you.
So now you know the power of in-kind donations, let’s talk about how you get more of them and what you’ll need to think about when you do receive them.
In-kind donations are services or goods/products that are offered to your organization free of charge instead of cash donations. They can be physical, tangible items, or intangible items such as time or skills.
Your organization almost definitely benefits from this through your volunteers — even if you don’t currently think of their time and resources as an in-kind donation.
These donations may come through companies or individuals.
A few examples of in-kind donations can include:
Securing in-kind donations can have numerous benefits for your organization:
You can reduce some of the total costs of delivering programs, holding fundraising events, or capital projects if you can receive in-kind donations that bring the overall budget down
Companies can be highly receptive to providing in-kind products or services — often more so than corporate giving donations or event sponsorship. This can be linked to the accounting benefits and getting the necessary approval to make an in-kind donation.
In-kind donations are also less likely to be dependent on company budgets. There may not always be a large enough budget for a company to support your organization financially (even if they want to!), but this matters far less if they decide to make an in-kind donation instead. From this perspective, leveraging in-kind contributions can be a great way to establish connections with companies that aren’t in a position to donate money.
Since it doesn’t require donors to give money, in-kind donations can sometimes be easier to secure. People will often be happy to donate their time, services, or products for free — often more so than giving cash to a fundraising campaign.
Think about the type of products or services that your organization needs and what you can offer to in-kind donors in exchange for their contribution. This is particularly important if your organization is approaching potential sponsors for in-kind sponsorship or partnerships.
Some of the benefits for in-kind donors may involve promotion and feeling a sense of goodwill for having donated items to support your cause, for example.
Once you have this figured out in your mind, you can start putting together a list of people that may be interested in providing in-kind donations for your needs.
Pro tip #1: To start things off, let your network know that you’re looking for in-kind donations. Your supporters may know people who can help with donations — but only if they’re aware of your needs in the first place. You can promote your desire for in-kind donations in the same way as cash donations by getting it out there on your organization’s website, social media channels, and donor communications. If the community is aware of what your organization needs, you’re much more likely to receive the right type of in-kind donations.
Before you accept an item, make sure you’re very aware of its history and any potential health and safety concerns — especially if they’re not brand new, and they’ll be passed on to the beneficiaries of your cause.
Make it obvious that your organization is grateful for any in-kind donations you receive, even if they wouldn’t be your first choice of product or service. This is particularly important for used items that may not be in the best condition but can still be used. When you first start reaching out for in-kind donations, it can take a while to decide where your efforts will be most effective.
In-kind contributions to nonprofits are tax-deductible like cash gifts. Issue in-kind donors with a receipt for their tax deduction, as you would do otherwise. This makes it a lot easier at tax time. Do remember to note the fair market value of the in-kind gifts so that you can mention that in the receipt to help donors with tax deductions.
Assess the impact of in-kind donations and the effect they have on your mission and work. Sometimes, donations will have a direct impact on your work, but it will often be a case of highlighting how it frees up extra funds, where these are spent, and the impact on your work.
Having an in-kind gift acceptance policy can help donors to be clear on the type of donations that you’re able to take and use. This can help avoid situations in which you’re not able to make use of a donation because it’s not aligned with your cause, for example.
A gift acceptance policy is also a great document to refer back to when your staff, volunteers, board members, or donors are spreading the word about your in-kind donation needs. You can quickly highlight examples of donations that aren’t appropriate or acceptable for your organization and mission, and what steps will happen next after a donation is made. Your nonprofit should also write down details about what is tax-deductible and how it works so that donors can be approached the right way.
Pro tip: Your in-kind gift acceptance policy should include as many guidelines and conditions as possible. Meet with your board to decide on what to write down. For example, if your organization is donated a large item such as real estate, it can be helpful to have a written agreement with the donor. This helps avoid any misunderstandings as to what the donation should be used for and can act as a reference point in the future if any problems occur. It can also set out any expectations the donor may have for your organization’s use of the donation and any reporting that will be required in line with this.
You’ll need to report in-kind gifts if they meet specific criteria.
Before you do this, you’ll have to come up with a “fair value” of the in-kind donation based on the market value. To make things easier, this can be done on the day of receipt.
The first question to ask is whether your nonprofit’s accounting is following Generally Accepted Accounting Practices (GAAP).
If you are following GAAP, you’ll need to make sure that you’re reporting in-kind donations in line with their principles and entering them correctly in your organization’s accounts.
Generally Accepted Accounting Practices (GAAP) principles dictate that in-kind donations should be recorded as income as soon as they’re received.
Here’s what the National Service Knowledge Network Online Learning Center says about recording in-kind donations:
“Under Generally Accepted Accounting Principles (GAAP), all contributions received should be recorded as revenue upon receipt, including in-kind contributions.
The Statement of Financial Accounting Standards (SFAS) No. 116 sets the standard for recording in-kind contributions in the general ledger for accounting purposes. According to SFAS No. 116, contributed services are recognized in financial statements if those services:
Services requiring specialized skills are those provided by accountants, architects, carpenters, doctors, electricians, lawyers, nurses, plumbers, trainers, and other professionals and craftsmen.”
According to the IRS, you don’t need to report in-kind volunteer support as revenue or contributions on Part VIII of Form 990, but it can be included elsewhere:
“No, volunteer time should not be reported as revenues or contributions in Part VIII, as public support in Schedule A or as non-cash contributions in Schedule M. It may be described in Part III, Statement of Program Service Accomplishments.”
Pro tip: If you have any doubts about whether to report in-kind contributions, speak to a qualified tax advisor. They can advise your organization as to whether the exact in-kind donations you’ve received should be reported and which forms to use.
When you’re recording in-kind donations, include the following information:
Breaking down your in-kind donations into categories can help too. This can include categories such as:
Separating your in-kind donations into these types of categories in your accounts helps you see the value of the contributions you receive, and it also saves time for filling in Form 990 to report in-kind goods.
After your organization receives an in-kind donation, thank the donor for their generosity. This helps to show your gratitude and can build a good relationship with a new donor, who may continue to make in-kind donations or switch to a cash donation later on.
Pro tip: A handwritten thank you note can work great for this. You can include details of how the in-kind donation will help your organization to deliver on your mission to demonstrate the impact of the contribution.
In-kind donations can be a great way to build stronger relationships with donors who may not be in a position to support your organization with a cash donation. They’re also an effective way to reduce your organization’s costs so you can make your budget go further.
Having a donation acceptance policy can make it simple to manage expectations around in-kind donations. This helps your organization to know which in-kind donations will be most valuable and avoid spending time and resources on in-kind donations that will be of little value.
Knowing the rules around reporting in-kind donations is also important, and you may decide to consult a tax professional to help you navigate this. Setting up your accounting to make it easy to track in-kind donations and report them, if necessary.
For more tips on getting the most from your fundraising and maximizing the donations you receive, check out the posts on our nonprofit blog.