Donations     |     23 October 2024

What Is an In-Kind Donation? Here Is Everything You Need to Know

A comprehensive guide to understanding and maximizing in-kind donations

20 minute read

Organizing a successful fundraiser takes time, energy, and resources. One way to ease the burden is through in-kind donations. What is an in-kind donation, you ask? Nonprofits receive a non-cash gift—think items, services, or even space—to support their cause. These contributions are as valuable as financial donations, sometimes even more so, since they can directly fill a need without requiring the nonprofit to spend funds.

In-kind donations are huge for nonprofits because they offer flexibility. Instead of buying everything outright, nonprofits can accept goods or services that help offset their operational costs. These donations free up financial resources for other areas and can lead to stronger partnerships with donors who may find it easier to contribute items or services instead of money. For charity auctions, for example, receiving a high-value in-kind donation like a vacation package or signed memorabilia can help raise even more funds for the cause.

What are in-kind donations?

When discussing in-kind donations, we’re referring to any non-monetary contribution a nonprofit can use to support its mission. It can be physical goods like furniture, electronics, or items for an auction. It could also be services—legal assistance, accounting, or web design—that nonprofits might otherwise have to pay for. The key difference between in-kind and cash donations is that with in-kind gifts, the donor gives something tangible or a service rather than writing a check.

For example, a local bakery might donate a year's supply of pastries to a food bank, or a lawyer might offer pro bono services to help a nonprofit understand contracts. These kinds of contributions often fill essential gaps, making a big impact without requiring extra cash flow. In many cases, in-kind donations open up the possibility for deeper community ties, especially when businesses or professionals are involved.

Types of in-kind donations

There are a few main categories when it comes to in-kind donations, each offering different forms of support to nonprofits:

Goods

Goods are the most common type of in-kind donation and include physical items that a nonprofit can use or auction off. Examples include artwork for a silent or live charity auction, gift cards to local businesses, school supplies for education programs, or even office furniture to set up a workspace. The nonprofit can use goods directly or sell them to raise funds for its cause.

Services

Instead of giving money or items, some donors offer their expertise. These are in-kind donations in the form of services, such as legal advice, graphic design, or even consulting. Donated services can be a game-changer for nonprofits that might not have the budget to hire professionals. For instance, a tech company might donate web development services to a nonprofit looking to redesign its website, or a local accounting firm might offer free bookkeeping support during tax season.

Other contributions

Beyond goods and services, in-kind donations include space, equipment, or media time. A business might let a nonprofit use its conference room for meetings, or a radio station could donate airtime to promote a fundraising event. These donations are often less obvious but can be incredibly valuable, allowing nonprofits to stretch their resources even further.

Benefits of accepting in-kind donations

In-kind contributions are a powerful way to stretch a nonprofit’s budget. Instead of spending money on items or services that can be donated, organizations can use their financial resources more strategically. For example, suppose a nonprofit receives a donation of office supplies or a service like IT support. In that case, the money they would have spent on those necessities can now be reallocated to program development or outreach efforts.

The immediate value of in-kind contributions goes beyond the donation itself. A nonprofit that receives donated goods or services can often put them to use immediately, avoiding the typical delays of procurement and approval processes. Whether it’s a restaurant donating food for an event or a local business offering pro-bono marketing support, these contributions allow nonprofits to focus on their mission without worrying about financial strain.

Accepting in-kind donations can strengthen relationships with local businesses and supporters. It opens up opportunities for partnerships that go beyond financial donations. Businesses that contribute items or services often feel a deeper connection to the cause and can become long-term supporters. For instance, a local printing company that donates flyers for a fundraising event may feel more inclined to sponsor future events, fostering a sustainable partnership.

Think of a sports team donating signed memorabilia for an auction or a tech company offering computers to a nonprofit's youth program. These in-kind contributions can make a huge difference, directly supporting the nonprofit’s goals without adding financial pressure.

How to solicit in-kind donations

Securing in-kind contributions takes some planning, but it doesn’t have to be a chore. With a few best practices in place, nonprofits can build a steady stream of support from both businesses and individuals.

First, it’s important to approach potential donors strategically. Businesses and individuals are more likely to donate if they feel a connection to your cause. Start by identifying companies or individuals that align with your mission. A personal touch can make a big difference, whether through a phone call, email, or in-person meeting. Explain what an in-kind donation is and how their contribution can help you reach your goals.

Another effective way to ask for donations is through online platforms and social media. Many nonprofits create a dedicated donation page that lists the items or services they need. You can also use social media to engage your audience and ask for specific donations. Sharing success stories of previous in-kind contributions can inspire others to get involved.

Writing targeted letters is another traditional but effective method. Personalized letters to potential donors can clearly outline the specific items or services your nonprofit needs. If you have a specific task in mind, such as office furniture or event space, mentioning it directly can help focus the donor’s attention on how they can help. A well-crafted wish list can make it easier for donors to provide exactly what’s needed.

Corporate relationships are especially valuable for high-impact in-kind contributions. Many companies have corporate social responsibility programs that include in-kind donations. If you’ve worked with a business, see if they’d be willing to donate goods or services. They might offer something you hadn’t even considered, such as access to their venue for a fundraising event.

Hosting in-kind donation drives or events is a fun and interactive way to gather support. Events like food drives, clothing collections, or silent auctions give donors an easy and enjoyable way to contribute. These events can also double as networking opportunities, strengthening ties between your nonprofit and the community.

Creating a gift acceptance policy for in-kind donations

When nonprofits accept in-kind donations, it’s important to have a clear gift acceptance policy in place. This policy helps define which types of gifts are eligible or ineligible. Having clear guidelines helps the organization receive donations that align with its needs and mission.

A comprehensive gift acceptance policy should include a list of acceptable donations and any conditions that might apply. For instance, a food bank might specify that they only accept non-perishable goods or items with an expiration date no sooner than six months out. On the flip side, the policy should also clearly state what the nonprofit won’t accept, such as expired or damaged goods. This policy prevents the organization from being burdened with items it cannot use or store.

Guidelines for accepting and declining donations are important to maintain transparency with donors. If a donor offers something that doesn’t meet the policy criteria, it’s much easier to reference the policy and politely decline. For example, if a nonprofit receives a donation of outdated computers that can’t be used or sold, referring to the gift acceptance policy allows them to refuse the donation while keeping the relationship intact graciously.

Nonprofits can also include examples of specific needs in their communication with donors. This clarifies the most useful donations and helps guide potential donors toward gifts with the biggest impact. For example, an animal shelter might emphasize the need for unopened pet food and avoid receiving items like half-used bags of dog kibble.

Clear communication about the gift acceptance policy can also inspire donors. When donors understand exactly what the nonprofit needs, they’re more likely to contribute in genuinely helpful ways. By setting expectations upfront, nonprofits can avoid awkward conversations and focus on creating positive, long-lasting donor relationships.

What are the IRS rules for in-kind donations?

In-kind donations can offer tax benefits for both the donor and the nonprofit, but to maximize these advantages, it’s important to follow IRS guidelines. The IRS has specific requirements for nonprofits and donors regarding these types of contributions, especially regarding how they are valued and reported.

For donors, in-kind donations are often tax-deductible, but not all in-kind contributions qualify. Generally, donations of property, goods, or certain services can be deducted, but the IRS does not allow deductions for time or labor. For example, while a pro-bono service such as legal assistance can be acknowledged by a nonprofit, the donor cannot claim a deduction for the value of their time. However, donations of property or goods, such as a painting or equipment, can be deducted based on their fair market value.

Nonprofits must fully comply with IRS rules when accepting in-kind donations. One key step in this process is calculating the fair market value (FMV) of the donated goods or services. Fair market value is a willing buyer's price for the item on the open market. This value must be documented and reported properly. Nonprofits must maintain accurate records of the FMV for all in-kind contributions they receive to ensure compliance with IRS regulations.

Reporting in-kind donations also means filing the appropriate forms. For nonprofits, the IRS requires these contributions to be reported on Form 990, the annual return required for most tax-exempt organizations. Nonprofits must list in-kind donations separately from cash contributions, specifying the fair market value of the donated goods or services. Additionally, the IRS requires special forms for certain contributions, such as property valued over $5,000, which must be reported on Form 8283.

Nonprofits should also be aware of the percentage of a donor’s income that can be deducted. Generally, donors can deduct up to 50% of their adjusted gross income for property donations.

How to record and report in-kind donations

Accurate tracking and reporting of in-kind donations are essential for nonprofits. This record-keeping ensures compliance with tax laws, provides transparency for audits, and helps maintain good relationships with donors. In terms of financial recordings, an in-kind donation is any non-cash gift that a nonprofit must document, just like monetary contributions.

Nonprofits should record in-kind contributions as if they were tracking cash donations in their financial systems. It involves creating a separate revenue account for non-cash gifts, where the fair market value of each donation is logged. For example, if a company donates office furniture, the nonprofit needs to record the FMV of the items as both revenue and expenses, ensuring it balances out in the accounting system.

Reporting for tax purposes is just as crucial. In-kind donations must be reported on Form 990, with the appropriate documentation attached. Additional forms for larger donations, like real estate or items worth more than $5,000, may be required. The IRS often scrutinizes these higher-value donations, making providing accurate records of their value critical.

Keeping detailed documentation of all in-kind contributions also helps in the event of an audit. Nonprofits should keep records of donation receipts, correspondence with donors, and any other paperwork verifying the gift's FMV. This transparency keeps the organization compliant and builds trust with donors who want to know their contributions are valued properly.

The process of valuing in-kind donations varies depending on the type of gift. Goods with clear market prices, such as retail items, are straightforward to value. Unique or specialized items like artwork may require professional appraisals. Services are valued based on what the provider would typically charge for their time or expertise. By accurately assessing and documenting these contributions, nonprofits can maintain clarity and fairness in their financial reporting.

In addition to tracking and reporting, nonprofits should always provide written acknowledgment to donors. A formal acknowledgment letter detailing the donation and its fair market value serves as a record for both the donor and the nonprofit. It’s important to note that nonprofits cannot assign a value to donated services; the donor is responsible for determining that, particularly for tax deductions.

Real-life examples of in-kind donations and their impact

In-kind donations often bring more than just financial relief—they can lead to creative opportunities and significant community impact. Take, for example, a charity auction where a local business donates a weekend getaway package. Beyond its monetary value, it can generate excitement and drive higher bids, turning a single donation into extra funds for the nonprofit. These types of donations support the organization financially while engaging donors and event participants.

Another powerful example is the donation of professional services. A nonprofit looking to launch a new website could easily spend thousands on web development. However, if a digital agency donates its time and expertise, that cost is eliminated, and the organization can use those savings to enhance other aspects of its mission. In this case, the in-kind contribution is a financial benefit and a catalyst for growth and modernization.

Nonprofits also benefit from in-kind donations of space or equipment. For instance, a community center needing renovation might receive building materials from a local hardware store. This contribution allows nonprofits to make necessary improvements without diverting funds from their programs. Similarly, media companies can donate advertising time or space, helping nonprofits reach a wider audience without the cost of traditional marketing.

The power of in-kind donations and Silent Auction Pro

In-kind donations offer nonprofits a tremendous opportunity to reduce costs, build stronger community relationships, and create more impactful fundraising events. Whether donated goods, services, or space, these contributions allow organizations to focus more on their mission and less on their expenses. 

Nonprofits need to be proactive to fully harness the potential of in-kind donations. Developing strategies to solicit these gifts—whether through personal outreach, online platforms, or events—can help increase the number and quality of in-kind contributions. Organizations should also review their gift acceptance policies regularly. These policies keep it so they are prepared to accept and manage donations in a way that aligns with their goals while keeping their operations streamlined.

If you’re ready to get more out of your fundraising efforts and manage in-kind donations, consider using Silent Auction Pro. Silent Auction Pro offers powerful event management tools to help nonprofits track, showcase, and optimize their in-kind donations. From online auctions to donor tracking, the platform simplifies the entire process, promising that you can focus on what matters most—your cause. Request a demo today to see how Silent Auction Pro can transform your next event and help you make the most of every in-kind contribution.