Not every gift arrives as a check. Food for a pantry, furniture for a program space, a donated laptop, a printing company’s free services, or a professional who gives her expertise at no charge are all in-kind donations. They matter to your mission, and many nonprofits receive more of them at year-end than at any other time. They also create more confusion than almost any other type of gift. Who values the item? Does it belong on your books? What should the thank-you letter say? Getting these answers right protects your financial statements, your donors, and your credibility with funders.
What to Record and What to Value
For your own books, in-kind gifts of goods are generally recorded as contribution revenue at fair value on the date you receive them, with a matching expense or asset on the other side. Fair value means what the item would sell for in an open market, in its current condition. A used desk is not worth what it cost new. Reasonable support for your number might include comparable listings, thrift or resale pricing, or a vendor’s published rates. Keep that support with the gift record, because an auditor or funder may ask how you arrived at it.
Donated services follow narrower rules. Under standard nonprofit accounting, you record contributed services only when they either create or improve a nonfinancial asset, or they require specialized skills, are provided by someone who has those skills, and are something you would normally have to pay for. An accountant donating a tax review, an attorney drafting a contract, or an electrician wiring a new space would typically qualify. General volunteer time, such as stuffing envelopes or serving meals, does not get recorded as revenue, even though it has tremendous value. You can and should track those hours separately for reporting and grant matching purposes.
A few additional points worth knowing:
- Donated use of space or equipment may be recordable depending on whether it’s a true gift and how long it lasts, so it’s worth reviewing case by case.
- Gifts you plan to sell (a donated car or a piece of art) have extra tax reporting requirements, and selling certain noncash gifts within three years can trigger a report to the IRS.
- Large totals of noncash gifts may need to be disclosed on your Form 990, so tracking them accurately throughout the year makes filing far easier.
- Keep a separate in-kind account in your chart of accounts so these gifts don’t blend into cash revenue and distort your fundraising results.
What to Acknowledge, and What Not to Say
This is where many organizations slip. For a noncash gift, the IRS expects your acknowledgment letter to describe the donated property, but it does not want you to state its value. The donor is responsible for determining the value for their own tax return, and you are not in a position to give tax advice or appraise their item. A letter that says “10 folding tables and 20 chairs” is correct. A letter that says “valued at $850” can create problems for both of you.
Your letter should include:
- Your organization’s name and a clear description of what was received
- The date of the gift
- A statement of whether any goods or services were provided in return, and a good-faith estimate of their value if so
- A thank-you that reflects the impact, which is the part donors remember
Timing matters too. Send the letter promptly, and in all cases early enough for the donor to have it before filing their return. Donors claiming noncash gifts above certain thresholds have additional forms and appraisal requirements, and they will rely on your documentation to complete them. Be ready to sign the appropriate forms if asked, and keep copies. For donated services, note that a donor generally cannot deduct the value of their time, but you can still thank them and describe what they provided. Your policy should say who values, who approves, and who signs, so every gift is handled the same way.
The Bottom Line
Record in-kind goods at fair value with support, record donated services only when they meet the specialized-skill or asset-creating test, and let donors value their own gifts. A written policy, a separate in-kind account, and a consistent acknowledgment template will save you hours during the year-end rush and again at audit time. If your acknowledgment process is already in place from the donor acknowledgment best practices post, add in-kind gifts to it now, before the busiest weeks begin.
