In-Kind Donation: Your Guide to Raising Money without Raising Money

Donations are the lifeblood of nonprofits and charities. But it's not only cash donations that matter — in-kind donations play a major role.

An in-kind donation is a gift provided to a charity, typically by a corporation or other entity (athough individuals can make them too), which either aids in the day-to-day operation of the organization, or in meeting the needs of the same people who rely on that charity or nonprofit. There’s a lot to consider, and it goes a lot deeper than just simply giving needed items and calling it a day. In this article we’ll dive into in-kind donation examples, best practices, and even legal and tax-related matters.

In-Kind Donations

As stated above, a gift in kind is any donation that does not consist of donating cash directly to an organization. Most in-kind donations fall into one of three main categories:

• Physical goods ("tangible gift")
• Professional services ("intangible gift")
• A payment to a third-party creditor on an organization’s behalf

When done right, making an in-kind donation can be incredibly beneficial to both parties involved. For the donor, it may be an opportunity to give away surplus goods that might otherwise cost money to dispose of. For the nonprofit, it allows them to acquire things that they need without eating into their operational budget. This creates the potential for a greater impact with a low cost to both parties.

These donations are also particularly powerful in times of crisis. For example, providing donations of medical supplies, building supplies, and manual labour during a period of disaster relief through a related charity can decrease the economic burdens on both the nonprofit and the community affected by the disaster.

Lastly, in-kind donations are often physical items that would otherwise end up in a landfill. Nonprofits have the opportunity to reuse, upcycle, or give away these items to those in need.

Examples of In-Kind Gifts

An in-kind donation can, by its nature, take on many diverse forms. Gifts include computers and office equipment that can help a charitable organization continue to operate at low cost. Or clothing and food that organizations can use to distribute to the hungry, homeless, and otherwise in need.

In both of these situations, there is a good match between the needs of an organization or the recipients of its aid, and the nature of the donation given. This is a standard which must be met in order for an in-kind donation to be effective.

Oftentimes, ineffective donations result from a lack of communication between donors and organizations, or a misunderstanding of a nonprofits needs and mission.

A donation may also not be a good match if the cost of shipping the donated goods to an overseas location is greater than the cost of sourcing the same goods locally. In this case, a cash donation is definitely preferable.

What Are The Best In-Kind Gifts?

As mentioned before, working computers and office equipment for nonprofits make terrific in kind donations. So do legal and accounting services for these organizations, since these services can become very costly, eating into their operational budget and lessening the impact of their cash donations. In effect, any donation that leads to a reduction in overhead costs for a nonprofit is a good donation. If you work at such an organization, take time to reach out to corporations that may be able to assist in the areas that you need; you may be surprised to see who feels charitable and is willing to help. If you work at a company that has surplus goods or can provide services to a nonprofit, consider reaching out to an organization in your community and asking what they need. Remember, communication is the key to ensuring a good donation.

When it comes to gifts that are provided directly to a charity’s recipients, most organizations will feature a list of items they need on their website (school supplies for children in impoverished areas, non-perishable food items of nutritional value, toiletries, medical supplies, to name a few). Again, if you work for such an organization, be sure to keep a list of those items which will do actual, measurable good on your website.

Don’t be afraid to think outside of the box of what is usually donated. A clothing company or department store, for example, could do well to donate socks to charities that help the homeless — socks are one of the most needed, yet least donated, items for shelters. It might not seem obvious, but once you stop to think about it, it’s hard to get by without them.

The Worst In-Kind Gifts

Typically, any gift given out of a desire to be seen as charitable without thought as to what will actually help is a bad gift. This can sometimes come down to the nature of the gift itself — and sometimes to the quantity! For example, in a disaster situation, a certain amount of clothing and medicine may be incredibly helpful. But after a certain point, additional donations have the power to not only fail to help, but become a burden to the recipients. Thought should always be given to the actual effectiveness of a donated item. When in doubt, ask.

USAIDS's Center for International Disaster Information (CIDI) lists some of the worst in-kind donations ever given, including used soap, dog food for hungry children, and baby formula that required water to prepare (in an enivironment with contaminated water).

What Is a Gift-In-Kind Letter

It is customary, when receiving an in kind donation, to provide a gift-in-kind letter. This letter of acknowledgement from a nonprofit to its donor is more than just a courtesy; it also serves a tax-related purpose (more on that later). It should include the name of the charity, its federal employer identification number (EIN), the name of the donor (whether an individual or a corporation), and any other relevant details. The monetary value of a tangible donation, both in terms of fair market value and in costs saved by the charity, should be included. Intangible donations may be harder to value, but should still be acknowledged.

For a donation in the form of payment to a creditor, the gift in kind letter should include the name of the creditor as well as the amount paid on the organization’s behalf.

In any instance where the exact value of a tangible donation is difficult to determine, the recipient organization can have an appraisal performed by an IRS-qualified professional.

Gift-In-Kind Receipt

While an acknowledgement letter may act as an in-kind donation tax receipt, it is a donor’s responsibility to make sure that they keep accurate records for tax purposes. If the acknowledgement letter doesn’t include the necessary information, then a donor should request a gift in kind receipt that includes the following:

• The name of the charitable organization
• The name of the donor
• A detailed description of the items and services donated
• A fair estimate or appraisal of the monetary value of the donation
• A declaration of any goods or services that were provided by the organization in exchange for the donation, or lack thereof

In-Kind Donations and the IRS

When it comes to reporting your charitable contributions with the internal revenue service, there are more rules then we can list in detail here. It is absolutely important that you work with an accountant who is familiar with in kind donations, and the laws surrounding them, so that your reporting accurately reflects the contributions provided and complies with tax law.

For starters, only donations to organizations registered as 501(c)(3) nonprofits — these are organizations that operate for charitable, scientific, educational, or religious purposes, and are exempt from federal income tax — will qualify for a deduction. Identifying such organizations is straightforward, as they are legally required to make their status publicly known.

From there, your ability to deduct gifts on your own taxes is determined by your own corporate status. Partnerships and sole proprietorships, for example, you may deduct the direct cost of the item, but not its fair market value. To illustrate, if you donate a computer that cost $X to make and is sold for $Y, you may claim $X in your deductions, but not $Y. The same applies to S corporations (any corporation where income taxes are paid by its shareholders and not the corporation itself), but not C corporations (those which are taxed directly, not through their shareholders). These are eligible for a larger deduction if a number of stipulations are met—either the midpoint between the cost and the fair market value, or double the cost, whichever is lower.

In the case of intangible donations, the value of the donation itself is not deductible. If, for example, you typically provide legal counsel for $150 per hour, and you provide three hours of free counsel to an organization as an in kind donation, the $450 you would have earned otherwise is not deemed tax deductible by the IRS. However, the overhead and other expenses accrued by providing those services are tax deductible, such as transportation costs, accommodations, food and beverage costs for traveling employees, and any other expenses. It is essential that you, as a donor, keep a detailed accounting of these costs if you wish to claim them in your IRS filings.

In-Kind Donations for Nonprofits: Additional Resources

We've covered a good deal of information here, but there are a number of other great resources online where you can learn more about giving and
receiving nonprofit gifts.

• Gift Acceptance Policies

  The National Council of Nonprofits has created a guide for charities to follow when creating a policy for what it will and will not accept as in kind donations and gifts.

• Donation Requests: 45+ Companies That Donate to Nonprofits & Charities

  This list, provided by Double the Donation, details corporations that regular provide in kind donations to organizations like yours, as well as what they provide

• In-Kind Gifts: How to Acknowledge and Recognize Them

  Further reading on protocols to follow when receiving donations of goods and services, both in etiquette and legality.

• Questions to Ask Before Accepting In-Kind Donations

  This guide outlines things that every charity and nonprofit should factor into account when accepting goods and services from donors.