GUEST POST // Understanding Nonprofit In-Kind Donations: 4 Things to Know
By Jon Osterburg of Jitasa
In the world of nonprofit fundraising, it can be challenging to strike the right balance between asking for enough donations to fund your mission and requesting so many that your donors feel fatigued. One of the best ways to approach this challenge is to alternate requesting monetary gifts with promoting other ways to support your organization, such as volunteering, attending fundraising events, and contributing in-kind donations.
Regarding the last option, Jitasa’s guide to in-kind donations defines the term as “any and all non-monetary donations to nonprofits or causes. They refer to the transfer of any assets, usually goods or services, to your organization from an individual, company, or other nonprofit.”
In this guide, we’ll review four things your nonprofit’s team needs to understand to make the most of in-kind donations. These include:
Common Types of In-Kind Donations
How to Solicit In-Kind Donations
Gift Acceptance Policies for In-Kind Donations
Recording and Reporting In-Kind Donations
As with any other type of fundraising ask, requesting in-kind donations strategically maximizes your nonprofit’s ability to receive helpful contributions to its mission. Let’s dive into how to do just that!
1. Common Types of In-Kind Donations
Since all non-monetary contributions fall under the umbrella of in-kind donations, you might be wondering what goods and services would be most beneficial to request from your organization’s supporters. As a starting point, here are a few types of goods commonly donated to nonprofits:
Program supplies. Specific items your nonprofit needs on a recurring basis to fulfill its mission are logical in-kind asks. For example, an animal shelter might ask for donations of pet food, toys, kitty litter, and dog beds to help their team take care of rescued animals.
Fundraising needs. To reduce upfront costs for your fundraising events, ask for some of the things you need to run them as in-kind gifts. These can include anything from a free venue for your gala to auction items to water bottles and snacks for walkathon participants.
Immaterial assets. Although donations of stock, real estate, cryptocurrency, and software licenses aren’t goods in the traditional sense, they’re still considered in-kind gifts because they involve the transfer of assets to your nonprofit from an external party.
As far as donations of services go, think about what upcoming projects at your organization could benefit from professional expertise but wouldn’t involve enough work for you to justify hiring a new staff member. For example, you may ask a web developer to donate their time to redesign your nonprofit’s website or request pro bono services from a lawyer to help you negotiate a complicated contract.
2. How to Solicit In-Kind Donations
Just like with monetary donations, donors will only contribute in-kind gifts if they know what your organization needs. Therefore, it’s important to actively request donations of goods and services using channels your supporters are likely to respond to.
Some of the most effective methods for soliciting in-kind donations include:
Your nonprofit’s website. Create a dedicated page where your list of recurring in-kind contribution needs can live. Then, leverage other communication channels such as email marketing, social media, and digital ads to direct traffic to that page.
Personalized donation request letters. To request a large in-kind donation from an individual supporter, send them a customized letter explaining what you need and why you need it—just as you would with a sizable monetary gift.
Wish lists. If you need several items for a one-time project, consider creating a wish list on a popular online retailer’s site and sending the link to your supporters so each of them can buy one item that aligns with their interests and budget.
Corporate partnerships. Businesses of all sizes are often willing to contribute in-kind gifts to local nonprofits, especially when it comes to fundraising event supplies or donations of services. According to 360MatchPro, the most effective corporate sponsorships are mutually beneficial. In return for providing goods or services, the business should receive free publicity from your organization to help grow its customer base.
When soliciting in-kind donations from businesses or individuals, always make sure potential donors understand the impact their gifts would have on your mission. Incorporate relevant data points, images, and storytelling into your requests to make them more compelling.
3. Gift Acceptance Policies for In-Kind Donations
Imagine you work for a food bank, where your job is to collect and sort through donations of nonperishable food that will be distributed in the community. Most of the time, the organization’s supporters give items that your beneficiaries can use and are grateful for.
But occasionally, you receive food that has been opened or is past its expiration date, which could be dangerous for the food bank to redistribute. How do you tell the well-meaning donors who contributed these items that you can’t accept them without seeming ungrateful?
The answer is to implement a gift acceptance policy at your organization. This key nonprofit financial management guideline covers the types of gifts—both financial and in-kind—that you can and can’t accept, as well as the circumstances under which you’ll accept various contributions.
To return to the food bank example, this organization should specify in its gift acceptance policy that all donated food has to be unopened and not expired. That way, you can tell misguided donors, “Thanks, but no thanks,” and back up this response by showing them the official policy. Plus, by publicizing your in-kind donation acceptance guidelines, your nonprofit can collect even more useful gifts from its supporters!
4. Recording and Reporting In-Kind Donations
Properly tracking in-kind donations requires a slightly different procedure than you would use for monetary gifts. First, create separate sections in your nonprofit’s accounting software for donated goods and services respectively. Then, follow these steps to record and report each contribution:
Figure out the gift’s fair market value (FMV). FMV refers to the price your organization would have paid if you had bought the gift on the open market. Research the full list price of goods online, and ask the provider of a donated service what they would normally charge for a comparable project to determine its FMV.
Record the gift’s FMV as a debit and a credit. This is because the amount of cash your nonprofit has on hand doesn’t change when you receive an in-kind donation, making its net value zero.
Include the total credit value of in-kind donations on your nonprofit’s tax return. Even though the net value of these gifts cancels out in your internal records, the IRS asks your organization to report the total value of all donations received throughout the year on your Form 990. They also require additional paperwork for certain types of in-kind donations, such as gifts of vehicles and historical artifacts, so make sure your nonprofit complies with these reporting requirements if applicable.
Additionally, you’ll need to issue donation acknowledgments to in-kind donors so they can claim their gifts as tax deductible. However, your nonprofit isn’t legally allowed to list a value for in-kind gifts on these acknowledgments—instead, you should leave a space for the donor to write in the value.
When your supporters contribute goods or services directly to your nonprofit, it speeds up the process of acquiring what you need to further your mission. Plus, it creates additional financial flexibility, since the money you would have spent on those gifts becomes available for other activities. As long as you solicit, record, and report them strategically, in-kind donations can majorly impact your organization’s ability to make a difference in the community.
This guest post was written by Jon Osterburg.
Jon Osterburg has spent the last nine years helping more than 100 nonprofits around the world with their finances as a leader at Jitasa, an accounting firm that offers bookkeeping and accounting services to not for profit organizations.
