What Are In-Kind Contributions?
In-kind contributions are non-monetary gifts. They can be donated goods, services, labor, use of facilities or equipment, and the like. Any nonprofit will tell you they prefer cash gifts and grants. Even so, in-kind donations often play important roles for big and small nonprofits alike.
In-kind contributions can include any of these categories:
- Donated goods such as food, computers, clothing and more.
- Pro bono services such as grantwriting or legal advice.
- Volunteer labor.
- Use of facilities or equipment at no charge.
Examples of In-Kind Contributions
In-kind contributions are any noncash gift to a nonprofit. In-kind gifts can be tangible, like donated food or furniture, or intangible, like pro bono services. These are just a few examples of in-kind contributions a nonprofit could receive:
- An architect who consults for free on a nonprofit’s capital project.
- A local vendor that donates anything from water to office supplies.
- A magazine that gives a nonprofit free advertising space.
- An alcohol company that donates cases of wine for a nonprofit’s fundraiser.
- The many individuals who donate good-condition used clothing to an organization that supports refugees.
How do in-kind gifts to nonprofits work?
In many ways, giving or receiving in-kind contributions is similar to giving or receiving financial contributions. But there are some unique aspects of in-kind contributions to be aware of.
In-kind contributions need to be accounted for and reported
Nonprofits record the value of an in-kind contribution as revenue, and (for goods but not services) the donor can take a tax deduction for it. Nonprofits track in-kind donations as part of their fundraising records. Nonprofits need to account for in-kind contributions in financial reports and tax filings. These numbers may also be needed in grant applications and grant reports. Nonprofits also need to track in-kind donations as part of donor records and donor stewardship. Nonprofits should record what they received, when they received it, who donated it and the donor’s contact information, and the value of the in-kind contribution. Nonprofits should familiarize themselves with the IRS rules regarding in-kind donations.
Determining the value of in-kind contributions
In order to account for in-kind donations, a nonprofit needs to know their value. For many items, especially lower-value items such as used clothing, the donor can self-report the estimated value of the gift. For things like donated vehicles, the nonprofit can research the fair-market value online. Donations of high-value items like art and real estate should be professionally appraised. The IRS offers guidance to donors about determining the value of donated property.
Acknowledging donors for in-kind donations
Donors who make in-kind contributions should receive a thank-you and an acknowledgement letter or receipt that indicates the value of the contribution. (A receipt may be optional for lower-value contributions.) Up to certain limits, donors can receive tax deductions for in-kind contributions.
Why are in-kind gifts important in philanthropy?
Even while cash is king, in-kind gifts can be helpful to nonprofits of all sizes. These are a few of the ways in-kind gifts can benefit nonprofits:
Pro bono services can be a big help to nonprofits
Experts who are willing to volunteer their time and services can be invaluable to nonprofits. Pro bono legal advice, accounting services, and consulting on everything from marketing strategy to organizational sustainability can be lifesavers to small-budget or cash-strapped nonprofits. Expert advice can also enable more established nonprofits to refine their operations or take their work to the next level.
In-kind gifts can be counted as matching funds
In-kind donations can be critical when grantseeking. Many public funders, and some private ones, will require grantseekers to show “matching funds” or multiple funding sources for a project. In a grant application that requires a nonprofit to show matching funds, the project revenue sources could include a mix of foundation grants, gifts from major donors, and in-kind contributions such as free advertising space to promote the program, donated food and drinks, and volunteer time. Especially for nonprofits with small budgets, in-kind contributions are important sources of matching funds.
Expanding a nonprofit’s support through in-kind contributions
In-kind contributions often come from donors who also make financial contributions to a nonprofit. That may be a board member who writes an annual check to the nonprofit and also lets the nonprofit use a conference room at their company for board meetings at no charge. Or a corporation headquartered in the community that donates thousands of dollars worth of their product to the nonprofit as well as making a grant through the corporate foundation. In other cases, a local business that does not have capacity to write a check to the nonprofit can help by allowing the nonprofit to use their venue for an event for free. By varying the types of contributions supporters can make, nonprofits diversify their revenue streams and create many pathways to expand and engage their support network.
Additional Tips for In-Kind Contributions
Nonprofits and funders should be advised of these tips regarding in-kind donations:
Not all in-kind contributions are helpful or welcome.
If a nonprofit receives donated goods it doesn’t need, can’t use, or has no space to store, that becomes more of a burden than a help to a nonprofit. Donors should find out what nonprofits need and can make good use of before making an in-kind contribution. Nonprofits can and should say “no, thank you” to an in-kind offer that would cause more work or trouble than it’s worth. Nonprofits can also create gift policies that describe what kinds of donated goods they do and don’t accept.
Nonprofits should be prepared to accept in-kind contributions.
To accept in-kind contributions, a nonprofit should know what your organization needs, can use, and has space to store. Nonprofits should also have a clear process to track, acknowledge, and report on in-kind donations. In-kind contributions are one of many ways supporters can help a nonprofit.
