Not all donations need to be monetary! By accepting in-kind donations, you can ask your donors to provide resources for your mission in ways that may be more accessible for some of your supporters. Despite not donating financially, in-kind donations can still qualify as a tax dedication, further benefiting your donors. While there are risks of accepting in-kind donations, those risks can be offset by creating firm policies and guidelines surrounding the in-kind donations your nonprofit will accept.
Learn more about in-kind donations and how they can help your organization!
- What are in-kind donations?
- Benefits of in-kind donations
- Risks of in-kind donations
- Taxes and in-kind donations
- In-kind donation policies
- Appealing for in-kind donations
What are in-kind donations?
In-kind donations are any non-cash donation made to your organization. These gifts can be donated by individuals or businesses as a way to provide support for your mission without needing to provide funds. However, an in-kind donation doesn’t need to be a physical item. Donors providing different services or expertise can also qualify as an in-kind donation.
The different types of in-kind donations can be useful for all nonprofits, but one type may be more helpful than others depending on your cause and the type of fundraisers you host. Knowing which type will be most helpful for your organization can help you maximize the benefits and minimize potential waste when accepting in-kind donations.
Types of in-kind donations
There are three main types of in-kind contributions: goods, services, and expertise. Each type has its benefits and risks for your organization to consider.
Goods are physical items people can donate to your organization. These items can be non-perishable foods, clothes, stationary, toys, other physical items, or larger items such as real estate or vehicles for your nonprofit to use. It can also include intangible property, such as copyrights and patents. While many organizations ask for goods they can directly use for their mission, you can also ask for physical goods to use for auctions or garage sales to raise monetary funds. Cash equivalent in-kind contributions, including stocks, bonds, or insurance beneficiaries, can also be considered a type of good, as they can be converted to cash depending on your organization’s policies.
Services are more commonly donated by businesses as a way to support a fundraising event or special project. The service given depends on the business but could include printing services, venue space, construction work, and more! These services help lower the cost of events and projects, which means your nonprofit doesn’t have to rely on fundraising to hit your goals.
Expertise gifts are similar to services, but they are usually based on a specific profession rather than a general service. Expertise could be an accountant helping your administration team, a lawyer providing legal counsel, or a graphic designer providing a free design. These in-kind contributions help your nonprofit reduce overhead costs on potentially expensive services.
Benefits of in-kind donations
There are many potential benefits for accepting in-kind donations that range from saving money to increasing convenience. One of the biggest benefits of in-kind contributions is they help to free up your budget by replacing goods or services you’d normally spend money on, such as administrative resources, event services, or auction items. This allows you to focus your fundraising efforts on other projects.
In-kind donations are also incredibly convenient for both you and your donors. For you, in-kind gifts can be used immediately rather than waiting for financial contributions to process. And for your donors, these donations provide a flexible option that may be more achievable for individuals or easier for businesses to provide.
Risks of in-kind donations
There are also a few risks involved with accepting in-kind contributions. Not all gifts are made equally, and you won’t be able to accept them all if you don’t create an in-kind donation policy. Some of the biggest risks include:
- Unsolicited in-kind gifts: Some people may assume your organization accepts a type of gift that you can’t actually use, risking the chance that you’ll eventually throw the gift away to prevent overcrowding. This risk can be mitigated by including a list of things not to donate in your gift policy.
- Gifts you can’t accept: Your nonprofit won’t be able to accept goods that have been heavily used or services your organization doesn’t need, which could make your nonprofit seem ungrateful if you don’t have a publicly available gift policy.
- Necessary storage: For physical goods, your organization needs the physical space to store the in-kind donations. Without the necessary storage, in-kind contributions could cause more stress for your team as they have to find new places to keep gifts.
- Determining accurate value: Hopefully, your donors will provide you with a fair market value for their in-kind donation, but if that isn’t provided, it may be difficult to determine an accurate value of the gift.
Taxes and in-kind donations
One of the benefits your donors get from any type of nonprofit contribution is a tax deduction, and in-kind donations are no different. However, because there’s not always a known dollar amount associated with in-kind donations like there is with cash donations, it’s important to make sure your organization has all the information you need to fulfill any IRS requirements for these contributions.
When recording in-kind donations, you should record a description of the gift as well as the donor-provided fair market value, also known as the price it would’ve cost your organization to purchase the donation. You will also want to record the donor’s name and personal information to be able to provide them with a receipt and a thank-you letter after the campaign. Your in-kind donation receipts should follow IRS requirements for charitable contributions, but larger gifts, such as property or historical artifacts, will require extra paperwork for both you and your donors.
While it’s best practice to be provided the fair market value from the donor of the contribution, there are some in-kind donations that may require you to research a good-faith estimate to include on their donation receipt and for your Form 990. Because in-kind donations still count as revenue for your nonprofit, you need to ensure you follow all of the IRS’s guidelines for including them in your Form 990.
In-kind donation policies
Your in-kind donation policies determine what types of gifts your organization will accept, and this policy will help deter people from donating items you can’t use. When creating your policy, determine:
- The types of goods, services, and expertise your nonprofit can use.
- The condition of in-kind contributions you’ll accept–whether you’ll only accept new items or gently used items.
- Items your organization cannot use and will refuse to accept.
- Who you’ll accept in-kind contributions from.
By having these expectations set ahead of time, you can offset some of the risks associated with accepting in-kind donations and avoid possible conflicts with potential donors.
Appealing for in-kind donations
Asking for in-kind donations is similar to how you would ask for any contribution to your nonprofit. To help get you started, here are seven steps to campaign for in-kind donations.
1. Decide what you need
With any fundraising campaign, you need to start by creating your goals for the campaign, and when you’re looking for in-kind contributions, you need to figure out what type of in-kind donations you need. The specific fundraiser will help you figure out whether goods, services, or expertise will provide the best impact for your needs.
If you’re looking for resources to pass on to the people your cause helps, you can create a list of goods you need to collect. But if you’re hosting an event, you can choose which services to ask for contributions for. Any expertise needs you may have can be appealed for on a case-by-case basis, or you can find professionals to create relationships with for more long-term needs.
2. Decide who to ask
Once you know what in-kind donations you need, you can start deciding who to appeal to. For smaller goods and expertise, individuals can provide a lot of your in-kind contribution campaign. Many individuals want to support your cause, even if they don’t have the financial means.
If you’re hosting a larger drive for goods or looking for services to be donated, businesses can be a great resource for in-kind contributions. When approaching businesses, look to partner with a business related to your cause. For example, if you’re asking for school supplies, approach office supplies stores to donate some of their products. Appeal to both local businesses and larger corporations to maximize your impact.
3. Make a wish list available
Your campaign for in-kind donations doesn’t have to be limited by your donors’ location! You can receive contributions from across the globe by creating a wish list of goods or services your organization needs and post it online.
Whether your wish list is posted on your website or uploaded through an online merchant, people can purchase goods to be sent to your organization. Or they could offer their professional expertise virtually, such as a graphic designer creating a logo or design and sending the design through email.
4. Market in-kind gift drive
Your supporters won’t know you’re looking for in-kind contributions if you don’t tell them. Market your in-kind gift drive across multiple channels to let your donors know you’re accepting in-kind donations and what your current needs are.
Create social media posts showing what has been contributed so far to motivate potential donors to join in the campaign. Or send out reminder emails about the gift drive to your supporters to let them know what you need to better help your community.
5. Send appeals
Besides marketing your campaign, you can also send out direct appeals to individuals and businesses alike for possible in-kind contributions. These dedicated appeals can help you encourage larger contributions from your donors.
When you’re sending appeals for your in-kind gift drive, you should include your guidelines on what donations you’re willing to accept and what rules you have regarding your in-kind contribution receipts. This provides your donors with the information they need up front to avoid unnecessary donations from crowding your nonprofit’s space or having to turn down donations.
6. Receive and record donations
To receive in-kind donations, you need to prepare a space to keep and organize the gifts that come in. Once you’ve received an in-kind contribution, it’s important to record what the donation is and details about it, including your donor’s stated fair market value of the contribution for tax purposes for both you and your donors.
Recording your in-kind contributions as you collect them will also help you know what was provided and who it was provided by to ensure nothing gets lost. This will also help you know who to thank for supporting your mission as well as track your progress towards your goals, showing how successful your campaign was.
7. Thank your supporters
The last step to any campaign is to thank your donors. No matter the type of in-kind contribution, showing your appreciation is the best way to encourage donor retention and motivate donors to give to your organization again.
Use the donor and donation information you recorded when collecting your in-kind donations to send out your thank-you messages. You can include the receipt for your donor’s contributions in your acknowledgments to make sure both your gratitude and their receipt get to your supporters in a timely manner.
In-kind donations are a great way to save money on resources while giving your donors a way to support your cause without needing to make a financial contribution. Plus, it’s a simple way for businesses to support your mission and still earn tax deductions! Once you’ve established your in-kind donation policies, you can start appealing to your community for gifts and expanding your nonprofit’s work.