In Kind Donation
Donation in simple terms means help out of gratuitous terms. Donation can be made in cash or other than cash (i.e. in kind). In broader terms, in-kind donations also known as gift-in-kind are contributions of goods, services, or time instead of cash. These could include things like equipment, clothing, books, computers, furniture, or supplies.
What does In-Kind Donation mean?
- Corporations and businesses are the most common source of in-kind donations for non-profit organizations. Instead of giving money to buy goods or services to non-profit, they buy these goods or services and gift them as charitable and gratuitous giving.
- In-Kind donations can include tangible or in-tangible goods or services.
- In-Kind donations help non-profits access goods and services which they might not be to afford on their own or free up resources in their own budget to purchase them.
- Certain non-profits like food pantries and housing organizations depend on in-kind donations to run their operations.
- In-kind donations received should be valued in monetary terms and recorded on a company’s budget for a value equal to the value on in-kind gifts the non-profit receives.
Example: An organization receives an in-kind donation of furniture worth $10,000 which includes benches, tables, and chairs. It is now tasked with the responsibility of reporting it. It should record the donation as in-kind income of $10,000 and an in-kind expense of $10,000 on its budget.
Types of In-Kind Donations
1. Goods or products
These can include tangible goods like computers, office furniture, computers hardware, computer software, cars, vans, medical supplies, or intangible goods like, financial securities, copyrights, royalties, or patents, trademarks etc.
2. Professional services
Includes specialized services offered by doctors, lawyers, architects, accountants, contractors, computer programmers and other professionals.
3. Other Services
Other services include rent free office space, free administrative services, discount on utilities or creation of an asset like a room as an extension to the children’s computer training center by volunteers
How does it work?
For accepting and managing in-kind donations, the recipient, in this case a non-profit may develop a process for accepting, documenting, and acknowledging gifts. Let us look at few examples mentioned below to understand how it works.
1. In-Kind Donation Letter
- A non-profit can draft in-kind donation letters which is sort of appeal to the donor to request for in-kind gifts. Some corporation might require filling an online form or submit the letter online on their website.
Example: Together Senior care center drafts an in-kind donation letter for a local corporation, asking for funding
August 16, 2019
Together Cancer Foundation
10923, Combine lane
Sunshine, FL, 56790
Email: [email protected]
Mr. James Williams
Manager, Operations & Corporate Giving officer
XYZ Pvt Limited
452 North Terrace
Sunshine, FL, 46789
Dear Mr. James:
I am contacting you to request your support for our ‘Time is Now’ fundraiser, which is being organized in support of the Together Cancer Foundation, on 18 October 2020 at Sunshine grounds. We are a closely knit team with a single objective to curb cancer by supporting patients of cancer who are unable to support their medical treatments. It is unfortunate that patients must fight cancer while shouldering the heavy burden of huge medical bills.
The ‘Time is Now’ fundraiser is our yearly initiative to raise funds for medical expenses of cancer victims and attracts more than 1000 attendees every year. These are including people who are there to support our cause or simply enjoy the fun activities at the event. We depend on the added support of our friends and contacts in the business community. We are offering a great opportunity for XYZ Pvt Limited to align itself with this popular event and a very worthwhile cause.
We warmly invite you to contribute by:
- Donating an auction item for the raffle
- Offering a corporate donation
With your generous contribution, Together Cancer Center will continue supporting victims of cancer and make a difference in their lives and their families. I will contact you to follow up regarding your contribution, share more information about the event and plan how you might wish to be recognized through the event.
Enclosed is a leaflet elaborating our work in and around Florida.
Hoping for your partnership,
Together Cancer Together
2. In-Kind donation Agreement
- The receiver is dealing with large in-kind gifts such as building supplies for disaster relief or an in-kind gift with specific requests from the giver, it is helpful to use a written gift agreement between the parties involved.
- This ensures clarity on the nature and purpose of the gift, and the agreement can be used to overcome disagreements in the future. This is not a legal agreement but a basis of agreement between the two parties involved.
Example: Mentioned below is a simple example of a gift agreement between Community Foundation and ABC corporation
Gift In-kind Donation Agreement
The agreement is entered into between the ABC corporation and Community Foundation to reflect an in-kind donation.
Product Description: (This includes details of the gifts such as purchase date, new or used, model, serial number etc.)
Assigned value by donor (ABC corporation): ________________ based on: __________________
ABC corporation agrees to donate the above-mentioned items as a gift to the Community Foundation on the date of execution of this agreement. The gift is made without liens, covenants, or encumbrances of any kind, real or implied, that would disqualify the transfer as a gift made by ABC Corporation to the Community Foundation to support distressed communities.
The description terms contained in this document constitute the complete agreement between ABC Corporation and Community Foundation regarding the gift given.
ABC Corporation Signature
Community Foundation Signature:
ABC Corporation information
Name of representative:
Valuation under $4,000:
- The Donor must complete an In-kind gift agreement form with a detailed description of each item
- The Donor should submit receipt copies, price lists for comparable items, to assist in determining the fair vale for the Foundation’s compliance purposes.
- Both the Donor and Foundation are required to complete the entire form, sign, and date the agreement.
- The signature of the foundation’s representative on the agreement is an acknowledgement of receipt of the gift and not agreement with the valuation of the gift.
3. In-kind donation receipts
- It is an acknowledgement provided to the donor only upon receipt of the gift. It also helps donors in they need to claim a tax deduction for gifts more than $250.
- For in-kind donations, the donor has the responsibility to value the donation.
- The receipt will most probably include the name the organization, name of donor, detailed description of the good or services donated, a statement that the organization is a charity and recognized as tax-exempt by the IRS, a declaration by the organization mentioning they were provided in-kind in exchange of cash.
In-Kind Gift receipt
Together Cancer Foundation
In-Kind refers to donations of goods instead of cash. Please note, according to IRS regulations, establishing a fair value on donated goods or services is the responsibility of the donor.
Company/Individual: XYZ Limited
Representative name: Mr. James Williams
Designation (if any): Manager, Operations & Corporate Giving officer
Complete Address: XYZ Pvt Limited, 452 North Terrace, Sunshine, FL, 46789
Phone Number: 579-345-7680
Together Cancer Foundation values your contribution and gratefully acknowledges the in-Kind donation mentioned below. No substantial goods or services were provided to you in exchange for your contribution.
Donors estimate of fair market price: $ 2300
Received By: Lisa Thomas, Social Worker, Together Care Foundation
Date Received: September 1, 2019
Please note Together Cancer Foundation is a current and valid 501(c)(3) non-profit organization in accordance with the standards and regulations of the Internal Revenue Service (IRS)
Thank you for your generous contribution. You are already making a difference!
Recording of In-Kind Donations:
The various types of in-kind donations require careful analysis for the sake of recording these items in accordance with the accounting principles. Let us take some few examples to understand how it works.
- A community radio station has a laptop donation program which encourages their listeners to donate used laptops, which will be sold by the station for cash proceeds. After a rigorous campaign for a week, the radio station has an inventory of 40 laptops with an approximate value $2000
The community radio should record a contribution and inventory of $2000 to reflect the year end balance. The used laptops are sold at an auction to raise cash. The $1700 of cash received will be offset by a reduction in inventory of $2000 and a reduction of contribution of $300.
- A children’s orphanage includes weekly medical check-up for the children as part of their health program and receives volunteer time from a local doctor as pro bono service. It requires the doctor to give at least 10 hours of volunteer time per week
The orphanage will recognize the fair value of the licensed doctor’s volunteer time because it includes a specialized skill. Even though the orphanage volunteers have received intensive training in various aspects of supporting the children, they do not possess the appropriate license or certification to qualify as individuals with specialized skill.
- A local factory as part of their community outreach decides to provide staff services, free of charge, to an affiliated non-profit organization for the administration of their welfare program for the senior individuals in the community. The non-profit measures their involvement and estimates the staff hours involved to match 40 percent of four administration staff and 90% of one accounting staff.
The outreach costs the factory $150,000 in salaries, which will be recorded as in-kind donation and expense.
Benefits of In-Kind Donations
- In-Kind Donations can be a vital source of revenue to the receiving organizations, especially during a downturn.
- It works as an efficient way to develop capacity and nurture supporters.
- Certain donations could even be central to an organizations vision and mission. Such as legal pro bono services like legal advice for cases, filing complaints, organizing legal camp to disseminate knowledge about rights to vulnerable population, for a human rights non-profit.
- In-kind donations can support to reduce program costs and free up resources for payroll for their staff.
- Corporations can also utilize these contributions to reduce their tax burden at the end of the year. They can report the value of the donations for a deduction on their taxable income.
- Businesses also might take it as an opportunity to donate extra items in their inventory and claim the value of the goods as a deduction.
- In-kind donation, also known as gift in kind, are contributions of goods, services, or time instead of cash
- Corporations and businesses are the most common source of in-kind donations for non-profit organizations
- In-kind donations include tangible goods like computers, office furniture, computers, cars, supplies or intangible goods like financial securities, copyrights, royalties, or patents etc.
- It can also include professional services with a specialized skill like lawyer, doctor services or other services like creation of assets by volunteers.
- For accepting and managing in-kind donations, the recipient may develop a process for accepting, documenting, and acknowledging gifts
- In the case of non-profits, it could be compiling an In-kind donation letter, In-Kind donation agreement between the receiver and donor and give an In-kind donation receipt as part of acknowledging the gift.
- There are various benefits related to In-kind donation such as a vital source of revenue to the receiver, helps to develop capacity of the organization, cultivate supporters, access to expensive professional services, free up resources for important costs like payroll.
- Businesses can also use the contributions to reduce their tax burden at the end of financial year by reporting the value of their donation for a deduction on their taxable income.
1. What is an in-kind donation?
An in kind donation is a contribution of goods, services, or time instead of cash.
2. What are some examples of in-kind donations?
Some examples of in-kind donations include:
1) Tangible goods: Computers, office furniture, cars, supplies
2) Intangible goods: Financial securities, copyrights, royalties, or patents
3. How do you value in-kind donations?
In order to value-in-kind donations, you need to determine the fair market value of the donated goods or services. This is often done by referencing resources or by contacting a third-party appraiser. Another option is to use the specific valuation methodologies provided by the IRS.
4. How does in-kind donation work?
In-kind donation works as an efficient way to develop capacity and nurture supporters. Certain donations could even be central to an organization's vision and mission. For example, a human rights non-profit may rely on legal pro bono services to provide legal advice for cases or to help disseminate knowledge about rights to vulnerable populations.
In addition, in-kind donations can also help reduce program costs and free up resources for payroll for their staff. Corporations can also utilize these contributions to reduce their tax burden at the end of the year. They can report the value of the donations for a deduction on their taxable income.
5. Do I need receipts for charitable donations?
Yes, in order to claim a deduction for an in-kind donation, you will need to provide documentation to the IRS. This documentation can come in the form of an invoice, bill of sale, or receipt from the recipient organization. Generally, this documentation should include information like the name of the donor and recipient, the date, and the fair market value of the donation.