In-Kind Contributions

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Notes from In-Kind Contributions (6/24/09)

Valuing

  • Nonprofits are responsible for assigning a value to donated items
  • However, if the donation is worth over $5,000, there must be an appraisal, which is a tax-deductible cost to the donor
  • GAAP rules govern the amount you can record for donated goods and services

Goods

  • The value of donated equipment or supplies may be recorded as the amount that the organization would have to pay for similar items
  • Ideally if the donor purchased an item to donate, they have the receipt
  • Ebay, craigslist, and the Salvation Army valuation guide are good tools to help you find the fair market value of an item
  • For art and handicrafts, record the cost of materials
    • Unless the item was created a professional, known artist, in which case you can determine the market value of their work

Services

  • You can record the value of services donated by volunteers pro bono that create or enhance non-financial assets (such as a building) or services that meet three criteria:
    1. Require specialized skills
    2. Are provided by someone with those skills
    3. Would have to be purchased if they were not donated
  • Donor cannot take deductions for services unless they are a professional with specialized skills
    • Professionals often have licenses: lawyer, doctor
    • Many professional jobs do not meet the specialized skill requirement, such as a receptionist
    • Volunteer drivers are only considered professionals if they are driving a semi or specialized vehicle
    • An Executive Director is generally not considered a professional with specialized skills (perhaps there would be an exception in the case of a school administrator)
  • A heavily discounted service can be considered a donation

Acknowledging Donations

  • Must acknowledge donations over $250 in value
  • Thank you letter should include
    • Organization name, address, and a thank you message
      • No donation value (if under $5,000)
    • It is always nice to acknowledge how you will use the gift
  • Communicate with donor so both parties assign a similar value, since donors may have a different idea of value
  • Note that some collection processes forgo acknowledgements and receipts, such as a collection of shoes in a box at a church
  • No receipt is required for donations from one nonprofit to another, only donations from an individual or corporation

Recording Donations

  • Why record in-kind donations?
    • Show value of public support given to the organization
    • In-kind donations can sometimes be used for matching funds and challenge grants
    • Maintain historical information about true costs of activities
    • Required for the 990 and by your auditor, if material in amount
  • Determine materiality of the donation when deciding whether to record or not. Is it one case of paper or a year's supply of paper? How much work do you want to put into it?
  • Good records can be updated weekly, monthly, quarterly, or yearly, depending on the organization's volume of donations

Tracking Donations in your Accounting System

  • In-kind donations are mirror expenses - you must record in two places, either:
    • Income and Expense (example: office supplies)
    • Income and Asset (example: computer)
  • Record within an expense line (ex. program materials) or in a separate in-kind line - create subaccounts, for example:
    • Books
      • Cash expense
      • In-kind
  • Using accounting software (such as Peachtree or Qucibooks) - create job numbers/classes/departments, this will help you run reports
  • Keep a journal with in-kind records
  • Record donations for silent auctions in your accounting systems
    • Know the value of each item before the event
    • If you display the value ("published" value) as $75 and someone pays $100, $25 is a donation
      • Sales income = $75, donation = $25
    • Learn more about financial management for Special Events and Silent Auctions
  • Read Donation Transactions from Not-For Profit Accounting

Communicating Support Given to Your Organization

  • Along with GAAP-approved donations tracked in your accounting system, also encourage staff to record other donations:
    • Number of volunteer
    • Volunteer hours
    • Board member hours
  • You can report in your annual report, newsletter, notes in audit
    • The 990 asks for numbers of volunteers
  • Be creative and tell your story

Reporting to the IRS

  • Remember that reporting in-kind donations may take you over the threshold ($750,000 in Minnesota) to be audited
  • Form 8283: donor submits if value of donation is over $500
    • Nonprofit has to be involved if over $5,000
    • Talk to your auditor if you aren't sure whether a group of similar or related objects should be treated as one donation or separate donations
  • Form 8282: file within 3 years if the donation is sold
  • Charitable Organizations - Substantiating Noncash Contributions

Donation Policies

  • Important to have a donation policy in place
    • A policy can help with donor relations, providing you with a nice way to say no, "thanks, but it is against our policy"
    • The IRS Form 990 has a yes/no question about having a gift acceptance policy
  • The policy should identify what you accept and what you do not accept
    • Consider declining things you cannot use
    • Accepting a large donation, such as a car, and planning to sell it may take up valuable staff time and saddle you with paperwork and fees
  • Restricted donations
    • If necessary, ask donor to alter restrictions
      • Example: Jacuzzis donated for Habitat for Humanity homes were not an appropriate gift to accept, according to Habitat's mission and policy. Staff asked the donor for permission to sell them.
    • Always ask if you can use donations in other ways

Interested in Learning More?

View our Resource Collection or check out the Discussion Archive for notes from other Financial Management Networks.

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