Non-profit organizations often rely on in-kind donations of various types to carry out their mission. These donations generally fit into 3 categories:
- Goods – furniture, equipment, clothing, supplies
- Facilities – electric or telephone service, use of office space
- Services – volunteer professional services including accounting and legal services, IT services, and fund-raising assistance whether free or at a reduced price.
Now that you’ve determined whether you have in-kind donations, the question arises as to whether these should be recorded in your accounting records. Ask yourself the following questions.
Which services and contributions are considered ineligible as in-kind donations?
While a nonprofit may accept donated goods and services, it is important to note that not all contributions align with the criteria for in-kind donations:
- Designated Items – Goods assigned for use by another entity will not be officially acknowledged by the nonprofit as in-kind donations.
- Peculiar Donations – Donations of goods and services that differ from the standard acquisitions essential to the regular operations of the organization might not align with the criteria for in-kind donations. Evaluating the compatibility of such contributions with the organization’s typical requirements is crucial.
- Conditional Gifts – Gifts accompanied by conditions are not considered part of in-kind donations. If a donor wants to contribute an item as a gift to your nonprofit while also outlining its intended use, it does not meet the criteria for a valid donation.
- Volunteer Hours – The contribution of volunteered hours is recognized as a qualifying in-kind donation only when the volunteer is contributing a specialized skill. Generic volunteered time, lacking expertise, does not meet the criteria for inclusion in the realm of in-kind donations.
While the nonprofit may acknowledge these donated goods or services, it is crucial to understand that not all of these will be captured in the books as in-kind donations. However, even if the contributions do not meet the above descriptions, they may still be documented in the organization’s financial records under the designation of “Gifts In-Kind” dependent on value and the Organization’s gift acceptance policies.
What value should my non-profit assign to each donation?
Now that you’ve decided whether your non-profit’s donations need to be recorded on your books, what value should you assign each donation? Generally, the fair value is the required measure.
- Goods – Use the price your organization would have to pay for this item at a store or online. If the items are used, there are several good valuation resources including:
- Facilities – contact a local realtor to provide the average rental cost for the square footage of the space you are renting in that same area.
- Services – accounting rules are more complicated in this area. Services are recorded when:
- The service creates or enhances a nonfinancial asset (example: you are upfitting your office and a contractor volunteers time to design the improvements and a volunteer paints the interior. Both are enhancing a nonfinancial asset.)
- If the service requires specialized skills and would have to be purchased by the organization if not donated. This includes accounting and legal services.
To find more detailed information about in-kind donations:
- Financial Accounting Standards Board Accounting Standards Codification 958-605 for Nonprofits
- IRS Publication 561 Determining the value of Donated Property
Please contact the Not-for-Profit Niche team at Gilliam Bell Moser LLP for further guidance.
