A Complete Guide to In-Kind Donations

Cash donations might provide the most financial freedom for nonprofits to run their operations, but charities shouldn’t underestimate the power of in-kind donations. Sometimes referred to as gifts-in-kind, in-kind donations are any goods or services provided to nonprofits to use directly, monetize or redistribute to the community, with no expectation of reciprocation on the part of the donor. Many nonprofits depend on in-kind donations to reduce their operating costs and help them meet financial goals that can’t be fully satisfied through traditional cash fundraising. In-kind donations of necessary goods or materials, free rent or professional services are as good as cash for nonprofits, often providing the best path for keeping the lights on and executing the mission of the organization.

Not only do in-kind donations offer practical financial support, but they also can be a great vehicle for building community relationships and extend giving possibilities to a broader demographic of donors. For example, a nonprofit that accepts the donation of staff hours from a business that sends employees to build a playground will form infinitely closer ties to that business and its employees than if the donor had simply sent a check. What’s more, donors in the community who may not have a lot of cash to give could have time and talents they’re willing to donate on an in-kind basis, whether it’s an artist who can draw a mural or a small law firm that can provide pro bono hours.

What Are In-Kind Donations?

In-kind donations are any noncash donation given to a nonprofit. Individuals, corporations and businesses can all make in-kind donations, which can include everything from real estate and professional services to free food and lifesaving drugs. In-kind donations often build deeper connections with donors and help forge lasting relationships due to the emotional connection that people feel in gifting valued items or talent as compared with the impersonal nature of cash.

Key Takeaways

• In-kind donations are any noncash goods or services gifted to a nonprofit.
• In-kind donations extend giving possibilities to existing donors who may have already given cash or new donors who don’t have the financial means to write a check at all.
• In-kind donations must be meticulously tracked for compliance with Generally Accepted Accounting Principles (GAAP) and reported to the Internal Revenue Service (IRS) as nonprofit revenue.
• Nonprofits can bolster their in-kind donation revenue through local networking in the business community, grants from foundations and social media marketing.
• Nonprofits should create an in-kind gift acceptance policy for governance and donor relations purposes.

In-Kind Donations Explained

In-kind donations broaden the opportunities for nonprofit donors to support their favorite organizations with valuable items or services that extend beyond a traditional cash outlay. They offer donors tax-advantageous ways to give back to the community, including:

• Disposing of excess or unwanted merchandise.
• Extending the life of equipment or technology after an upgrade.
• Offering specialized expertise or talent.
• Maximizing industry discounts to deliver goods more affordably than if a nonprofit were to buy them directly.

Meanwhile, in-kind donations provide income that can be as important as cash donations for nonprofits to meet their financial goals. In-kind gifts open up a range of new avenues for nonprofits to reduce or reallocate their expenditures, raise money through fundraising auctions or thrift store operations, distribute items to needy individuals or access specialized goods that organizations may not be able to easily or affordably purchase on their own.

The following situations are just a few examples of in-kind donations in action.

• Pro bono legal counsel: Free legal services are among the most common service-based in-kind donations received by nonprofits.
• Construction materials: Lumber or hardware donated to support community housing build-outs is an excellent example of the power of in-kind donations. Often, construction businesses can get a volume discount on these goods and provide more material on an in-kind basis than if a nonprofit were to buy the goods themselves with the same amount of cash.
• Used cars: Used cars offered to charities for resale or scrap are another type of in-kind donation. In this case, the charity receives the gift with the goal of monetization, rather than direct use.
• Lifesaving drugs: Pharmaceutical companies donating anti-malarial or other lifesaving drugs to nonprofits operating in developing countries provide valuable in-kind support. Sometimes these types of drugs can’t be purchased in those locations for any price due to political or logistical reasons.
• Community clothing drive for needy families: Clothes, school supplies or shoes donated by the public are in-kind donations that are frequently distributed directly to needy individuals or families.

In-kind donations can sometimes include goods or services offered at a substantial discount to normal market prices — for example, the gift of half-price rent on a building would fall into this category. The difference between market rates and actual rates charged to the organization would be considered the gift. However, a standard nonprofit discounted rate provided by a service provider would not count as an in-kind donation.

Types of In-Kind Donations

Because in-kind donations include nearly everything except cash, the types of donations received by nonprofits run the gamut from gift cards and used cars to web design and legal help. At the most basic level, in-kind donations can be broken into two major categories: goods and services. But there are several other specific types to keep in mind as well.

• Goods

  Goods donated on an in-kind basis are any kind of tangible, physical asset that can be used by the nonprofit or resold for proceeds that can support the nonprofit’s mission. Donated goods include new products, raw materials or used items that still have useful life or contain parts that can be repurposed.

• Services

  Specialized services performed for free, such as legal, technical, consulting or design work, typically count as in-kind donations to nonprofit organizations. These donations are usually recorded based on the professional provider’s standard hourly rate or the standard flat fee for the donated service.

• Expertise

  General volunteer hours offered by individuals without a professional background in the work being provided don’t count as in-kind revenue and aren’t tax-deductible to the volunteer. Expertise and professional certifications/qualifications tend to be the determining factor here. The types of in-kind expertise that can be gifted to nonprofits include:

  • Legal
  • Medical
  • Accounting
  • Construction
  • Project management
  • Business consulting
  • Design or artistic

• Cash Equivalents

  Cash-equivalent donations, such as gift cards and gift certificates, can be given to nonprofits on an in-kind basis. Additionally, publicly traded securities, including stocks, bonds and mutual funds, are common in-kind donations that can have significant capital gains tax savings for the donor compared to donating cash if the securities have risen in significant value since purchase. Because the donor didn’t sell the investment, they get a tax deduction for the current value of the donated securities and they don’t have to pay capital gains on the increase in value.

• Time

  As explained above, time spent by general volunteers doesn’t usually count as an in-kind donation, but professional services tied to an hourly rate do count. Another way that businesses can provide time on an in-kind basis — both generalized people-power and specialized expertise — is through loaned employee programs. In this case, the employer puts its employee at the disposal of a nonprofit for a fixed amount of time and that employee’s regular salary for the time period would be considered an in-kind donation.

• Real Estate

  In-kind real-estate donations can include the gifting of permanent ownership of land and buildings, as well as rent-free occupation of real estate owned by the donor. Sometimes real estate may be given outright through bequest — either for the nonprofit to use directly or to sell for their organizational benefit. Other times donors may gift real estate to support a specific need, such as expanding into a new town or supporting a growing venture. Most commonly, nonprofits are offered the gift of rent-free office or warehouse space to run their operations during a specific amount of time.

Benefits of In-Kind Donations

In-kind donations offer a win-win situation for nonprofits and donors alike. Nonprofits can extend their revenue and reduce overhead through in-kind donations. They’ll also strengthen relationships and build a broader network of supporters by accepting generosity through alternate modes of giving. Meanwhile, donors are able to reap tax deductions for giving items that may have otherwise gone to waste. Additionally, donors can gift their talents through services even when cash flow is tight.

• Tax benefits: In-kind donations are tax-deductible, similar to cash donations, but they often require both the donor and the recipient to jump through more hoops to appropriately track and acknowledge the donation. As with any donation of more than $250, an in-kind donation of goods or services will require the nonprofit to provide written acknowledgment of the gift. The donor will determine market value of goods provided, but anything thought to be worth more than $5,000 must also be verified by an IRS-qualified appraisal, a document prepared by a professional appraiser adhering to the Uniform Standards of Professional Appraisal Practice (USPAP) developed by the Appraisal Standards Board of the Appraisal Foundation. For services, the written acknowledgment should include a description of the services and hours provided by the donor, as well as the time frame in which those services were rendered.
• Cost savings for nonprofits: Whether it’s free creative work provided to get a marketing campaign over the finish line or medical supplies given to support a disaster services team, in-kind donations can greatly reduce operational and capital expenses for nonprofits. The savings afforded by gifts-in-kind allow organizations to meaningfully reallocate funds that they would have used to purchase those same goods or services. Additionally, the right in-kind donation could stretch a budget to make reaching goals more attainable. This maximizes fundraised cash and increases the impact of a nonprofit’s mission.
• Positive impact on the community: Actively soliciting in-kind donations offers nonprofits the opportunity to build more meaningful engagement and connection within the community. In-kind donations also expand community reach to those who would like to meaningfully contribute to local causes but have limited funds to give. Additionally, the giving of tangible items, talent or time elicits a more emotional connection between the giver and the recipient than simply writing a check. Most importantly, in-kind donations often can make or break a nonprofit organization’s ability to consistently provide services to the local community year in and year out.
• Building relationships and partnerships: In-kind donation drives are a great way to establish long-term partnerships with local businesses and other nonprofits within a given community. For example, a back-to-school supply drive for local needy children organized by an alliance of nonprofits would establish and strengthen connections among those organizations, the schools and the community at large. Partnering with local businesses to help collect, donate and distribute items not only amplifies the effort, but also paves the way for more collaboration in the future.

Challenges of In-Kind Donations

While in-kind donations provide a plethora of benefits to nonprofit organizations, there are a number of logistical and legal considerations that come with accepting them. Organizations should prepare for the following challenges to safely and economically get the most out of these gifts.

• Legal and regulatory compliance: Nonprofit recipients of in-kind donations will need to take steps to stay in line with rules set by the IRS, Financial Accounting Standards Board (FASB) and other regulatory bodies that govern how nonprofits solicit, accept and track charitable donations. For example, nonprofits must be properly registered with the IRS to solicit any kind of charitable gifts in most states. Additionally, Generally Accepted Accounting Principles (GAAP) require that in-kind gifts are properly reported in financial records, and there are complex rules about how certain gifts are reported to the IRS. For instance, organizations have to disclose in-kind donations on IRS Form 990 and if they sell, exchange or otherwise distribute certain property within three years, they must also file Form 8282.

  Much of the legal and regulatory compliance will require strong documentation, disciplined tracking processes and flexible technology for tracking in-kind donations over time. While in-kind donations could technically be recorded in a simple Excel spreadsheet, accounting software that keeps track of compliance-mandated details — such as type of good/service, fair market value, disposition of gifts and limitations imposed by donors — can help nonprofits bolster their financial management practices. Additionally, nonprofits need the right set of professional expertise to navigate the legal and regulatory edge cases that can crop up from unusual in-kind donations. For example, if an organization is gifted a valuable piece of real estate, they may need an attorney to help them understand what kind of added property taxes they might have to pay, even if they’re typically exempt from other taxes. This is one reason why pro bono legal and accounting services are often some of the most common in-kind gifts in the nonprofit space.

• Proper use of donations: Sometimes nonprofits can struggle with a range of operational and ethical challenges stemming from the unusual nature of in-kind donations. For example, well-meaning but random gifts-in-kind might not be properly used if they don’t support the nonprofit’s mission. Nonprofits need limitations and guidelines in place to govern the types of donations they accept, when they accept them and what condition those goods should be in. Otherwise, they risk alienating a well-meaning donor or having inappropriate goods go underutilized, take up storage space and create extra work for nonprofit staff and volunteers in processing these items.

  Meanwhile, valuable in-kind gifts could create ethical quagmires if the nonprofit doesn’t have policies in place to manage conflicts of interest in how those gifts are used. For example, a vacation rental given as an in-kind donation for a fundraising raffle could be a great way to help the event succeed. But are there policies in place that dictate whether a favored volunteer or employee can win that raffle prize? Thinking through situations like these and making policy decisions in advance can prevent perceptions of impropriety, as well as more serious consequences, such as IRS sanctions, that can arise from financial conflicts of interest.

  In order to get the most out of every in-kind donation and keep ethical concerns at bay, nonprofits should put appropriate governance policies and practices in place around:

  • The types of in-kind donations a nonprofit accepts.
  • How the organization prevents and manages conflicts of interest around the use of in-kind gifts.
  • When, why and how in-kind donations are retained, used or sold.

  In addition to the basics, such as maintaining a functioning board of directors, the Council of Nonprofits suggests organizations implement the five governance policies that IRS Form 990 asks about when filing. These are:

  • A written conflict of interest policy.
  • A written whistleblower protection policy.
  • A written document retention/destruction policy.
  • A written gift acceptance policy.
  • Steps and policies to avoid prohibited private benefit from joint ventures.

• Logistics and transportation: The donation of physical gifts can pose logistical and transportation challenges for nonprofits, particularly those without gift acceptance policies and plans in place for appropriate storage and distribution of items. For example, gifts donated by community members for use by a nonprofit in disaster relief could cost a nonprofit significant resources to use — particularly if relief is administered in far-flung locales. In this case, the nonprofit would need facilities and processes in place to:

  • Store donations before distribution.
  • Organize, collate and sift through items to ensure that they’re appropriate and usable for the situation.
  • Transport items to the right operational sites.
  • Distribute items to needy individuals or workers who could use them in the field.

  As organizations think about accepting gifts-in-kind, they should consider factors such as perishability, volume of items and transportation logistics required to properly make use of these donations.

• Transparency and accountability: In 2020, the FASB updated its GAAP reporting and disclosure requirements for nonprofit recipients of in-kind donations to increase the level of transparency and accountability around these sources of revenue. The update requires nonprofits’ accounting to list in-kind donations as a line item separate from contributions of cash or other assets. They also need to be broken down into different in-kind donation categories and include information about how the gifts were used, such as whether they were leveraged in an organization’s operations, sold or given away as a part of a nonprofit’s mission. The FASB also requires nonprofits to include documentation of policies they have around monetizing in-kind donations, descriptions of any donor-imposed restrictions for using specific assets, as well as documentation on how the organization determines fair market value of donations.

Tips for Finding In-Kind Support

One of the main benefits of in-kind support is that it can often be easier to solicit than cash donations. Creative fundraising efforts can garner support from businesses and individuals in a community that are willing to give away new or like-new items they weren’t using anyway. Similarly, the right fundraising appeal for in-kind donations may generate a more emotional connection than a call for cash — some donors may be more likely to go out and buy the item or provide the service needed than they would be to write a check. Here are some tips for soliciting in-kind donations.

1. Start with your Network

   Current financial donors, program participants, volunteers, past event attendees and even beneficiaries of charity from a nonprofit could be potential in-kind supporters. The financial flexibility of in-kind giving can open up possibilities of new giving methods for those in a nonprofit’s network, thus extending the support that an organization’s committed backers are able to give. A loyal donor who has already given a substantial amount of funds but is tapped out for the year may have some unused furniture that can perfectly support a new office opening. Meanwhile, someone who has benefited from a nonprofit’s charity may not have the financial wherewithal to give cash but could have a valuable talent to share that would advance the nonprofit’s mission. This is why starting with your network is so important.

2. Look for Local Businesses

   Appealing to local businesses for in-kind support can garner short-term gains to acquire the goods or services that will meet an immediate need, as well as set the stage for longer-term partnership. Many local business leaders have a vested interest in working to improve the community around them — not only for the greater good but also to help build a more livable community for their employees. And most business are always seeking ways to improve their brand visibility and perception among the locals. In-kind donation of recycled computers, loans of local employees to help build a park or catered food for a nonprofit’s events are all fun and visible ways for local businesses to show they care about their community. Nonprofits that can tap into the local business community’s desire to get involved can greatly increase their in-kind support. This means not only making creative asks of local businesses, but also visibly thanking them and even partnering to promote their in-kind support.

3. Use Social Media

   Social media provides some great channels for soliciting in-kind support, both for ongoing donations and to meet an immediate need for goods or services. Effective use of social media by nonprofits is enhanced by authenticity and effective storytelling — two traits that, not coincidentally, are also key for effective fundraising. Organizations seeking to drive more in-kind donations should be prepared to clearly tell the story of the types of goods or services they’re seeking, the ways that these in-kind gifts will be used and how these donations will help the community, the mission or specific people. The asks don’t always have to be complicated or costly to fulfill — for example, a wildlife rescue may be running low on mullet to feed their pelicans. A timely post on Facebook for local anglers to drop off some of their catch could be the fastest and most cost-effective way to satisfy those birds.

4. Partner with Other Nonprofits

   Sometimes nonprofit organizations can amplify their voices and increase the size of their networks by teaming up to solicit in-kind donations, especially if the mission is to serve a shared community. A good example of this would be partnerships that nonprofits make to support a communitywide basket brigade around the holidays, which solicits massive in-kind food donations from businesses and individuals for those in need.

5. Attend Networking Events

   Making connections with local businesses and other nonprofits starts at the person-to-person level. Nonprofit leaders who hope to bolster their in-kind support would be well-served to get out into the community to meet the decision-makers who can both open doors and contribute in-kind gifts directly themselves. This means joining local groups, such as civic organizations, chambers of commerce, parent-teacher groups and church organizations. It also means regularly participating in and attending events hosted by these groups over the course of the year. Nothing beats personal networking for making the connections that can lead to large donations.

6. Seek Out Grants

   While most people think of grants as strictly monetary gifts, many grant programs deliver support through in-kind goods or services. A search of nonprofit hubs, such as GrantWatch, shows hundreds of grants available to provide everything from technical support and artistic residencies to funding for supplies that make workplaces more pet-friendly.

7. Approach Foundations

   Foundations run by corporate or family entities frequently distribute both cash and in-kind gifts and grants to nonprofits that support their broader mission or charitable goals. For example, the Oracle Education Foundation collaborates with schools and nonprofit organizations in neighboring Oracle communities to deliver on its mission to help young people develop technical acumen and creative confidence to design solutions for the world’s problems. Some of the in-kind donations the foundation makes are Oracle employee expertise, learning materials and space for students to take classes. Finding a foundation that aligns with a nonprofit’s mission could be an excellent way to greatly increase in-kind donations and support new campaigns.

Creating an In-Kind Gift Acceptance Policy

Establishing and following an in-kind gift acceptance policy is important for any nonprofit from a governance and reporting perspective. IRS Form 990 asks whether nonprofits have such a policy and they must answer “yes” to complete the accompanying Schedule M form to report specific gift values.

But beyond legalities, a clear gift acceptance policy can also alleviate logistical nightmares and downright uncomfortable situations for staff and volunteers processing in-kind donations. Without a gift acceptance policy, nonprofits may receive random gifts that go counter to their values, are too old or damaged to safely use, increase insurance liability or are just plain impractical to use. Guidelines on the kinds of gifts accepted can set clear boundaries that make it easier to say no thanks to a gift without making it feel personal. Here are some items to consider including in an in-kind gift acceptance policy:

• An organization only accepts gifts consistent with its mission.
• Where and how gifts can be delivered to the organization.
• The condition that goods must be in (new, lightly used, etc.).
• Stipulations for approval by the nonprofit’s board or other governing body for unusual gifts, such as real estate or other personal property.

The Nonprofit Risk Management Center offers good examples of language a gift acceptance policy can use to set guidelines.

Manage Accounting for In-Kind Donations in NetSuite

Managing accounting for in-kind donations requires significant attention to detail and a solid process for tracking in-kind gifts, organizing them by type and recording their value as revenue and also as expenses when used for operations. NetSuite Cloud Accounting Software provides nonprofits with all the tools they need to not only execute core financial management and accounting tasks, but also effectively track and manage in-kind donation reporting. NetSuite provides a flexible set of features tailored to the diverse set of revenue streams that nonprofits depend on, including grants, cash donations, pledges, gifts in-kind, services and ticket sales. This includes automated FASB reporting mapped closely to Form 990 line items but also easily customizable. Leaning on a solution like NetSuite eliminates the guesswork and stress of tax compliance. It also enables more mature financial management and forecasting that make in-kind donations a more visible part of an organization’s picture of financial health.

Additionally, the NetSuite Social Impact program is geared toward putting these powerful features and controls at the fingertips of eligible nonprofits on an in-kind basis. NetSuite offers a range of software donation, pro bono consulting and training programs to help nonprofits worldwide level up their accounting practices and fuel their financial health.

In-kind donations provide nonprofits with a powerful tool for establishing financial health, expanding the reach of their missions and tightening emotional connections with their donor base. However, nonprofits must be prepared to meticulously track the revenue from in-kind donations to satisfy legal and tax reporting obligations.

In-Kind Donation FAQs

What is the best in-kind donation?

The best in-kind donation is one that helps support a nonprofit’s mission through cost reduction or monetization and takes minimal overhead to process, store or transport.

What is cash vs. in-kind donation?

Cash donations are direct financial donations to a nonprofit. In-kind donations are all other noncash gifts that include a range of goods and services.

What are examples of in-kind support?

In-kind support varies across a wide range of goods and services. Some examples of in-kind support are pro bono legal or consulting services, equipment or furniture, food, office supplies or even raw materials like lumber to support community home-building.

Are in-kind donations tax-deductible?

Yes, in-kind donations are tax-deductible for donors, provided the donor gets written acknowledgment from the nonprofit recipient.

Are in-kind donations considered revenue?

Yes, in-kind donations are considered revenue for a nonprofit, and if they are used for nonprofit operations, they’re also debited as an expense.

How do I document in-kind donations?

The Financial Accounting Standards Board (FASB) requires nonprofits to list in-kind donations as a line item separate from contributions of cash or other assets. They need to be broken down into different in-kind donation categories and include information about how the gifts were used and how the value was determined for each donation.

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

The Internal Revenue Service (IRS) requires nonprofits to report in-kind donations on Form 990 and describe in Schedule M of that form the number of items, the value of the items and the method of determining the value of the items, broken down into dozens of categories.

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

A pro bono service is a type of in-kind gift, namely a service provided free by a qualified professional to a nonprofit. In-kind gifts are a broader category that comprises any type of non-cash gift donation, including all goods and services.

How do I figure out the value of an in-kind gift?

The value of an in-kind gift should be determined by the fair market value of the goods or services rendered. This means figuring out what it would cost on the open market to buy the product or professional service had it not been donated. Typically, fair market value is provided by the donor.