In-kind donations—non-cash contributions of goods or services—are an essential part of nonprofit funding. Whether it’s donated office space, professional services, or supplies, nonprofits must track these contributions properly for accounting and reporting purposes. Here’s how in-kind donations impact finances and Form 990 reporting.
1. What Are In-Kind Donations?
In-kind donations are non-cash gifts provided to a nonprofit, including:
Goods: Office equipment, furniture, clothing, food, auction items, vehicles
Services: Legal assistance, graphic design, consulting, accounting
Use of Facilities: Free office space, meeting rooms, or event venues
Are Volunteer Hours Considered In-Kind Donations?
Generally, no. The IRS does not allow nonprofits to count volunteer labor as revenue on financial statements or Form 990. However, professional services (e.g., legal, accounting, medical services) may qualify if provided by a professional in their area of expertise. You will still want to track these volunteer hours, as your funders might want that data.
2. How Should Nonprofits Track In-Kind Donations?
Accurate tracking ensures proper financial reporting and compliance. Nonprofits should:
Record the donation's fair market value (FMV): This is the estimated price the item/service would sell for in an open market.
Obtain donor documentation: A receipt or written statement describing the donated goods or services.
Use accounting software: Many nonprofit accounting systems have specific fields for in-kind contributions.
Acknowledge donors properly: Send thank-you letters, but avoid assigning monetary value on donor receipts (the donor determines the deduction value).
3. How Do In-Kind Donations Affect Financial Statements?
Under Generally Accepted Accounting Principles (GAAP), nonprofits must:
Recognize in-kind donations as revenue in financial statements.
Record a corresponding expense or asset, depending on how the donation is used.
Ensure proper classification under Statement of Financial Position (Balance Sheet) and Statement of Activities (Income Statement).
Example:
A lawyer provides $5,000 worth of free legal services.
The nonprofit records $5,000 as revenue (donated services) and $5,000 as legal expense.
This keeps the financial records accurate without inflating cash flow.
4. Reporting In-Kind Donations on Form 990
The IRS requires nonprofits to report in-kind contributions in various sections of Form 990:
Part VIII, Line 1g: Reports donated goods and services as revenue.
Schedule M (if applicable): Required if non-cash contributions exceed $25,000 or if certain types of donations (e.g., art, real estate, vehicles) are received.
Schedule B (if applicable): If a single donor contributes $5,000+ in non-cash gifts, they must be disclosed here.
What About Services?
IRS guidelines state that donated services are NOT reported as revenue on Form 990. However, they can still be included in financial statements under GAAP if they meet certain criteria (specialized professional services).
5. Best Practices for Managing In-Kind Donations
Keep detailed records: Store receipts, donation letters, and fair market value estimates.
Develop a gift acceptance policy: Establish guidelines on what types of in-kind donations your nonprofit will accept.
Train staff and board members: Ensure your team understands IRS reporting rules and financial statement requirements.
Conclusion
In-kind donations provide valuable support to nonprofits, but tracking and reporting them correctly is crucial for compliance and transparency. By properly recording and reporting these contributions, your nonprofit can ensure accurate financial statements and IRS filings while maximizing donor trust.
To make sure your 990 gets done correctly, reach out to InstantNonprofit!