When you receive gifts of products, time and services, be aware that your organization can be held in even greater regard by donors of such In-Kind gifts, should you express your gratitude in a meaningful way—in a manner far and above how these contributions are usually acknowledged by non-profit organizations. This can be accomplished in strict keeping with the applicable IRS rules and regulations, which are especially explicit when it comes to In-Kind gifts and how non-profits handle them.
By law, non-profit organizations cannot provide a donor with the dollar value of an In-kind gift. Such valuations when applicable, relative to “fair market value” of In-Kind gifts, need to be professionally assessed and certified elsewhere—if they can be—and that is the responsibility of the donor. This certification subsequently needs to be resolved with the professionals and others who prepare the donor’s tax forms—whose work in turn will need to be reconciled with IRS regulations. In instances where time and service are donated, no tax break whatsoever is allowed, as the IRS Publication 526 clearly states, “You cannot deduct the value of your time or services…”
This unique aspect of In-Kind gifts often causes a non-profit organization to acknowledge them in understated, and almost offhanded ways, unlike the precisely stated amounts cited for gifts of cash and stocks. As well, the dollar value of gifts of cash and stocks can be directly related to specific programs and services made possible by such support, which is not usually the case with In-Kind gifts. Thus, appreciation of In-Kind gifts is not always expressed as effectively and graphically, but it can and should be.
A non-profit organization can acknowledge In-Kind gifts with descriptions of their practical value to the organization, and make some reference to their worth in dollars—what they might have had to pay “retail.” Most non-profit organizations could treat their In-Kind gifts in somewhat the following way:
Sample Acknowledgment for an In-Kind Gift
“Thank you for your generous gift of ________(Full Description)________ which we received on ____(Date)____. Your generous contribution will help to further the important work of our organization.
(Note: The benefit to the organization of the In-Kind contribution may be expressed in exact terms of its direct application to the organization’s operation, or it may be more appropriate that an indirect reference be made when the In-Kind gift’s application is not as sharply defined.)
While, according to IRS regulations, you will not be allowed to declare the value of your donation from our acknowledgment, we can say that, but for your generosity, we likely would have had to expend approximately $________ for what you gave as an In-Kind contribution. These are dollars saved which we are able to apply directly to support the programs and services we provide for the well-being of those whom we serve in our community.”
Recognition: Same as Cash
In addition, appreciation of in-kind contributions can always be publicly recognized by non-profits in their annual reports and other publications, with the donors’ names listed under the respective gift category amount related to the “retail value” of products, time or services donated. As stated previously, those figures would not be IRS-deductible amounts, and are not certified as such. But the public gestures by non-profit organizations regarding the “market worth” of In-Kind gifts are always greatly appreciated by the donors.
There can be little doubt that your In-Kind donors would be quite pleased to see their names listed in a contribution category of that “retail cost” right up there with the givers of cash. This public listing has been practiced for many years, with those contributing cash finding no fault when In-Kind donors are placed in the same category with them. And more importantly, donors of In-Kind gifts frequently express their gratitude for being recognized in such an appropriate and thoughtful manner.
Don’t Be Unkind to In-Kind
To reinforce the idea that it is a well-served practice to recognize In-Kind gifts in the way suggested, and that by not doing so could disappoint or alienate the donors of such gifts, I am reminded of two incidents.
Recognize What it Would Have Cost You “Retail”
Recognition of an In-Kind gift became a serious issue with a non-profit client of mine following the conclusion of a successful capital campaign. The new building was up and operating. Everyone—board, staff and the community—was satisfied and happy. The trouble came as the listing was being finalized for permanent and public recognition of the capital campaign donors on a bronze recognition plaque for the lobby, in preparation for the new building’s dedication event. Names were placed in columns under the specific and respective contribution levels. Those of us who were involved in various leadership roles for the campaign together reviewed, edited, and then approved the final rendering of the listing before it was to go to the plaque manufacturer. Then, two of the organization’s leading board members abruptly demanded the removal of the name of a major In-Kind donor from the $15,000 to $19,999 category, and demanded that the donor’s name be repositioned in the $1,000 to $4,999 category.
The In-Kind donor was a paint manufacturer. The original campaign expense budget for the paint (prepared well before its donation) reflected a best price to be paid in the market in the amount of $15,000 for the gallons required to paint all of the rooms in the new, several story building. The two shortsighted trustees adamantly insisted that, from experience with their own businesses’ manufacturing costs, the true expense to the paint company would only be approximately one-third of the retail price, and that was the gift category in which the paint contribution should be recognized. I went tooth and nail on this, and I finally won over the two truculent board members when they realized that, had not the paint been donated (no matter the cost to the paint manufacturer), the non-profit would have had to raise additional cash in the amount of $15,000 to pay for the paint.
Sometimes, being stubbornly practical and literal can do damage to the relations a non-profit has with generous benefactors. Imagine the officials of the paint company attending the dedication event of the building they supported, only to see their company’s name placed in a category not in keeping with the worth of the paint as they knew it—but greatly diminished in value as seen by the officials of the non-profit organization.
In-Kind vs. “Real Money”
I was going into the last month of a fund-raising consulting contract for a capital campaign with a social service organization. All had gone extremely well over our ten-month partnership. The organization’s volunteer leadership and staff did an outstanding job, the money was raised for the new building, and I felt that the last month of my contract required greatly reduced counsel on my part. Even if no counsel was necessary, the contract required that I be paid. In any event, I told them not to pay me for the last month. As I saw it, I “donated” $3,000 to the organization. Naturally, I did not attempt to declare that “value” for a tax deduction. But, when the celebrations were over and the new building was dedicated, I, with some anticipation, looked for my name to be listed in the campaign publication under the “$1,000 to $5,000” category, or included with their listing of In-Kind gifts. My In-Kind contribution was not acknowledged in any way. I asked the Director of Development about what I thought to be an oversight. The answer was quick and curt, “We appreciate what you did, but it was not “real’ money.” I saved them $3,000 from their capital expense budget, and the money was not “real?”
Valuation: It May Not Seem Fair, But It’s the Law
As the two foregoing examples show, the value of In-Kind gifts for which organizations should thank donors is not necessarily the same as the value that the IRS will allow for tax purposes—or that the donors perceive themselves as having given.
When it comes to putting a value on In-Kind gifts for the purpose of donors taking tax deductions the rules can seem to donors to be unfair. Basically donors of In-Kind gifts cannot take a deduction for the time that they donated as a part of that In-Kind gift. Only the actual out-of-pocket expenses for which donor have receipts can be treated as a tax-deductible charitable gifts.
For example, let’s say there is a furniture maker who determines what to charge customers for a table by multiplying the number of hours he works on the table by an hourly rate at which he values his time and expertise and then adding that amount to the cost of materials. In this example let’s say it takes him 10 hours to make a table and that he values his time at $50 an hour. And let’s say that the materials he used to make the table cost $100. He may see the value of that table totaling $600, and might try to get that price if he were to sell it. But instead of selling it he gives it to a nonprofit.
The question the furniture maker/donor and the nonprofit have before them is: What is the amount that the furniture maker/donor can take as a tax deduction for his/her gift of the table? The answer according to the IRS is simple: $100—only the out-of-pocket cost that the furniture maker/donor incurs. It doesn’t matter that he believes he could sell the table for $600. The furniture maker/donor’s time and skill–the value he adds to the cost of materials is not tax deductible.
Why does the IRS neither accept nor itself place a value on the donation of the furniture maker’s own time and expertise? Because there is no universal formula that can be applied to our furniture maker’s time and expertise to determine its fair market value (FMV). There are too many variables involved. The IRS could not relate to one craftsman’s tax break claim of a $50 per hour rate to another’s of $150 per hour. To complicate matters even more, imagine the differences when it comes to the total time taken to make the furniture. The per-hour charge, and time taken to make the product, are variables which cannot be reconciled by the IRS.
It may not seem fair, but it’s the law. Arguments could be made for a different tax valuation structure, but those arguments would need to be made to Congress not the IRS. The latter only administers the laws that the former makes.
Never Take In-Kind Gifts for Granted
The final message here is that you must regard all types of “In-Kind” gifts with the care and consideration they deserve. It’s so easy, and so appropriate to acknowledge “real” cash and securities properly. But all too often when it comes to In-Kind gifts, it’s another kettle of fish. It should not be.
I have a charity to help animals and low-income people. The business account is at the same bank as my personal account, and I transfer considerable sums over to the business account. I then use the business account to pay for everything.
The time has come for me to write myself an an knowledgement letter which will be signed by another board member. To your knowledge is there a particular form or certain language needed in that letter?
If a taxpayer owned building rents space to a not for profit for less than market value ($1 per year) and only charges for heat and electricity for a few months out of the year (say 5-6 months) and taxpayers pay the full annual taxes, utilities (for the months not paid by the not for profit) and repairs on the building, is it legal to use taxpayers money in this way? Isn’t the below market annual rent and payment of utilities 6 months of the year and payment of repairs, with taxpayer money considered a illegal donation of taxpayers funds to the not for profit?
Last year I was sworn in as the Secretary-Treasurer & Director of a nonprofit. I have an accounting degree. I oversee the financial operations including tax filings, bookkeeping, etc. I am in the office doing this work on a volunteer basis averaging 12 to 15 hours per week. Would the time volunteered be an in-kind donation to the organization?
On another note, independentsector.org is a good source for determining the value of volunteer time. They update it every year.
Volunteer time is not tax-deductible unless you claim the hours as income first. In other words, you would need to report 12 to 15 hours of pay on your income taxes via a 1099 and pay the appropriate taxes before you can deduct the amount you donated back to the organization. The other way is to bill the organization and donate the cash.
My nonprofit helps veterans. We sometimes pay for a night of lodging at a hotel or motel for a homeless veteran. We give the funds to the hotel/motel, not the individual, so that we are guaranteed our proceeds will not be misused. Would we record that as an in-kind donation, a charitable contribution, a gift, or a cash donation?
What does the IRS say about a non profit putting the dollar value of a gift in kind in a thank you letter to the donor?
If a donor donates a gift in-kind (like a computer) that the church had not been requesting from its donors, can the church apply a value to the donor’s pledge that he made toward the operating expenses of the church? I know we can apply stock gift values against a pledge but what about computers, vehicles, and other fixed assets?
So I have a question. I do drafting and scope development for non profits. I do t charge. I loom a this as a creative work or development of intellectual property as a software program to track attendance would be. Using you above if the org would be willing to provide a letter thanking me for saving them from spending funds and putting back into building would that have a shot of passing the muster ?
Jerry,
I am not sure what you are asking here. I’m assuming you are talking about donating services to a nonprofit. If that is what you want to do you should speak with the particular nonprofit about what they accept and what their rules are. If you are asking about whether your donation is tax deductible, first the nonprofit would have to accept it, but the nonprofit would be unlikely to assign a value to it. That would be up to you and your accountant/attorney, and then you could only deduct your actual out of pocket expenses. The law is clear on this.
I used to work with an business that assisted non-profits in the entire process of selling gifted personal property. We were focused on items like cars, boats and the like. I do recall they also mentioned that they would assist real property like homes or land. Do you have an organization/business that you recommend our non-profit could work with to act as a clearinghouse for gifted items? If I recall correctly, they took around 30% of the sale price of the donated item and we would receive our funds within 30 days of the sale.
Hi There,
We are an Australian Charity organization which receives In Kind donations from US in the form of containers of medical Supplies which they ship directly to Middle east on our behalf .They issued a Gift Certificate to us dated 12th Dec 2019 along with the packing list to us for supply of 5 containers of Medical supplies valued at Usd 2 million.The actual shipment of the containers took place only on 7th Jan 2020.
Can we account for the value of In Kind Donations relating to this consignment in 2019 ?
Kind Regards
Scaria
Scaria,
This is a question that you would need to answer under applicable Australian law. I suggest you contact an attorney or accountant.
The Residence Association of our Community is holding a fund-raiser for the Alzheimer’s
Association as a third party donor. We are soliciting in-kind donations for our silent auction. How do we acknowledge these donations so that the donors can take the appropriate deduction?
Alzhemiers
Mary,
The best way would be to have the Alzheimer’s association handle this directly. It would then be responsible for assigning a value. Donors cannot take a deduction for more than their out of pocket cost for what they donate. If your Residence Association is going to be the recipient of the items, it would have to be a nonprofit organization such as a 501c3, and it would then have to value the item and issue a donation letter. The question of value is a complicated and important one. I would definitely try to lay off the handling of it the Alzhemier’s Association.
We are building a special needs playground and Miracle League baseball field. The total cost of the project is just over $2.5MM. The infrastructure is approximately $1MM. The company that is building the infrastructure is willing to do as much as half, of the infrastructure as an in-kind service if they can take a tax credit on it. They are not donating any materials but they are using their own company equipment such as tractors, graders, trenchers, skid-steers, excavators etc. and providing experienced equipment operators. This could save our 501c3 as much as $500,000 but, if I’m reading this correctly, it sounds like the contractor can’t claim it. Am I interpreting this correctly?
Bruce,
The contractor can only claim actual out-of-pocket expenses. He can’t claim what he or you perceive to be the value of the work done.
This was a great article! I know you have gone over these rules many times; I’m just trying to make sure I have it straight:
In this case, the contractor could (for example) donate 3 hours’ rental of excavator, tractor, skid etc and place a value on the rental of that equipment (assuming they DO normally rent the equipment), but not on the time they provide to run the equipment. That would be considered volunteer labor.
If they DON’T normally rent the equipment, there is no way to value the rental of the equipment and there is nothing to deduct. Or, can they still research the FMV of equipment rental and deduct that amount?
Theresa,
For tax purposes, gifts in kind can only be valued at the actual expense to the donor of providing the gift. No hypotheticals. The donor would need to be able to prove the actual expense.
It was a worth reading indeed. A poor volunteer who donates his/her time and services free of cost to a NGO/NPO could be in list of donors and may have saved the cost as much as a donation of billionaire. I was in support of declaring in kind gifts on fair market value but acknowledging services and time in this way (irrespective of tax benefit or not), I learned it today. Thanks
I work with a non profit that gathers books that are donated from the community at large, both businesses and individuals. They are thinking they need to report the in kind gift of books at FMV to the IRS. IS this true?
I have a question about reporting to donors…if our Gift in kind contributions are 15M and our donor contributions are 5M, and you add the two together–the non profit is reporting 3% for admin and 7% fundraising will be 10%–but, is that ethical to say that? because we all know it costs more than 350K for the fundraising and in actuality it cost 1.5M for fundraising. thank you.
Emma,
I am unsure exactly how to respond to your question. First of all there is the question of how you are arriving at the value of your gift-in-kind contributions. Have you valued them according to IRS regulations, or are you valuing them at what they would have actually cost in the open market, or at what the donors say they would charge for the products or services? If I were running a nonprofit, I would not want to risk being perceived as trying to mislead about the ratio of expense to results. I would prefer to air on the conservative side. If my fundraising expense is out of line with what I raise, I would work to correct that. It would be my responsibility to do so.
If a business donates a hunt for an auction for a non profit organization, and is receiving half of the money raised, the non profit keeps the other half, would any of this be considered tax deductible to the giver?
Sarah,
The only part of any gift-in-kind that is tax deductible is the provable out of pocket cost incurred by the donor of the gift-in-kind.
Such a great article. I have read through many comments but not come upon my situation. I am a board member of an all-volunteer 501c3 neighborhood organization, serving as Chair 2016 and 2017 and Vice Chair 2018. During this time our organization took on a $200,000 fundraising effort for a capital campaign to restore a highly visible piece of city property in our neighborhood, which had fallen into a state of disrepair. We did not hire a fundraising consultant. Two board members are without question the biggest volunteers of the successful campaign, working long hours over two+ years: (1)I used my 40+ years of business, PR and communications, and (2) the other board member provided direct labor on the project. Now we are planning the donor sign. Should I, as a board member and volunteer with no paid staff, be acknowledged under in-kind? Should the other board member and volunteer who provided direct labor be acknowleged under in-kind? (We paid three craftsmen to provide direct labor as well, and our board member furthered the production and saved us money though not a professional in this line of work.) Is there a difference between the type of labor provided and how each board member should be treated with respect to the sign? Is it appropriate to acknowledge board members in this way? I look forward to your reply. Thank you!
Martha,
I think it would be more appropriate to single out the board members who made contributions of labor and effort separate from the list of donors. They are part of the leadership team that made the project and campaign a success and should be recognized for their special contributions.
Hello, I would think Yes. This shows potential Board members the tone of the board and how they can too contribute to what they also believe in.
You must keep records showing the time, place, date, amount, and nature of the expenses. For details, see Revenue Procedure 2006-50, 2006-47 I.R.B. 944, available at IRS.gov/irb/2006-47_IRB#RP-2006-50.
Contributions You Can’t Deduct
There are some contributions you can’t deduct and others you can deduct only in part.
You can’t deduct as a charitable contribution:
A contribution to a specific individual,
A contribution to a nonqualified organization,
The part of a contribution from which you receive or expect to receive a benefit,
The value of your time or services,
Your personal expenses,
A qualified charitable distribution from an individual retirement arrangement (IRA),
Appraisal fees,
Certain contributions to donor-advised funds, or
Certain contributions of partial interests in property.
First off, wonderful article!
I have combed through the comments and the article and I feel that I should probably still ask my question.
We are getting ready to install donor recognition for cumulative donors of $100,000 or more to our organization (this recognition will be updated annually). We have run into several instances where a donor has given most or even all of this amount through GIK (we do include a value in their gift record) and the “values” of some of these in-kind donations (like tv spots or marketing) have been “valued” by the donor at over $1million.
We would like to recognize these contributors, but are hesitant to include a $3million dollar cumulative in-kind gift (with no monetary giving) alongside some who has given $3million to our annual fund, capital campaigns, etc.
What is your recommendation(s)?
Heather,
If there was a legitimate gift in kind valued at $3 million then that gift, to my thinking, should be treated with the same respect and recognition as a cash gift of $3 million. I do not understand why you would treat a donor who makes a gift in kind with any less respect and gratitude than one who gives cash. If you are saying that the value of the gift in kind is questionable, then the organization has a bigger problem if it has issued an IRS letter stating a dishonest value for the gift. I suggest that you have an attorney and/or a CPA advise you on this matter.
A donor has indicated a willingness to donate to our University all the proceeds (not just the net proceeds) associated with the sale of her book. (She’s led a remarkable life and has a wide network of acquaintances and admirers.) This is the second edition of her book and the cost for republishing it will be $5,500. The donor has provided us with a paid invoice for that amount and her tax advisor has indicated that the University should provide her with an acknowledgement letter for this “gift-in-kind”, viz., the publishing expense. Do you agree? Thank you.
Joe,
For a gift-in-kind the IRS rules as I understand them state that a donor may receive only the out-of-pocket expenses–the actual money spent on the gift. It seems this instance would meet that test, but I am not an attorney. The question I would need answered if I were you is who will actually own the published books and who will take possession of them. The IRS may require that the university both own and hold the books. I think you had best seek legal advice on this issue. Another issue may involve who is selling them and how the sales are accounted for. I would definitely involve the university’s attorneys.
Can you comment on how the organization should acknowledge the fundraisers for the solicitation of in-kind gifts? They are often not counted against team or personal fundraising goals.
Lynn,
I would think a thank-you letter acknowledging their acquiring the in-kind gift would be sufficient. I am assuming that by fundraisers you mean the solicitors who brought in the gift. Also any organizational celebration of a campaign should treat those solicitors no differently than any other.
Hi There,
I have a horse that I am leasing to a therapeutic riding program. I agreed to donate him to the program. He is a very well trained dressage horse and could easily be sold for $10,000. We agreed that we would settle for a $5000 donation thus I would not have to get an appraisal. They just got back to me today and evidently their tax attorney has told them that non-profits cannot accent anything over $2500 in in-kind donations. This seems fishy to me. Can you advise. Thank You
Wendy,
I am neither a lawyer nor a CPA so take that into consideration when you read what I say. I am unaware of such a rule for in kind donations. Of course my lack of knowledge doesn’t mean there isn’t one. It seems to me that in giving the horse to the organization you are donating a capital asset. If so that is not an in kind gift. If you donated the loan/lease of the horse that would be an in kind gift. However there still might be limits on what you can take as a deduction. It might be that you could only deduct your cost basis for the horse. You should get an opinion from an attorney familiar with IRS regulations and nonprofit law.
Thank you so much for taking the time to answer my question. I decided to take the horse back. The whole process became too complicated . Thanks again.
Hi……..wish I had time to review the hundreds of valuable comments in hopes of finding a direction for me but alas I don’t…..my question is:
I have $14,000.00 (receipts on hand) of expenses that I personally covered for my non-profit performing arts org. I have a fiscal sponsor and have gotten better about donating $ to them to use for expenses (they send me donation receipt) but there’s a TON of stuff I just handle on my own without running thru them (they’re in a neighboring town…need it now off ebay…amazon….snacks for kids at store while I’m doing my personal shopping etc.)……….what is best way to have them issue me some sort of in in kind receipt??? I need the write-off!!! THANKS!
SKHunter,
Talk to the CEO or development director of the nonprofit. If documented, the receipts should be enough to get a donation credit for the receipts. In the future you should arrange in advance to be credited with a donation. Also you would need to prove that the goods purchased were donated to the nonprofit.
Can board members of a NPO or board members of an Auxiliary NPO receive tax-deductible benefits from in-kind gifts?Or are they excluded due to their board status?
BJ,
Board members can donate to a nonprofit and receive the same tax benefits anyone else would.
I’m a board member of a church and we are searching for a property to rent for a new ministry. A gentleman wants to donate 500 to the church, and in-turn we pay 500 rent? We have his CPA stating this allowable, but doesn’t seem right. He has been unable to rent the space for a number of years. We were thinking we could just give him a donation letter for the value of rent, but after reading some articles, maybe an “in-Kind” letter with no value is more appropriate?
Steve,
I think the question I would want answered is why the donor wants to run the money through as rent. My guess is that he has business reasons. Under any circumstances, I would try to follow the donor’s wishes as long as doing so is legal and ethical.
Thanks so much for this. I was hoping you could help clarify a question. We had a silent auction for the charity I work for, and someone donated concert tickets. The donor of the tickets paid $10,000 for the tickets and we sold them at auction for $2000. What should our tax letter mention? The $10,000, the price at which they sold ($2000) or the difference? Thanks for any help!
Jake,
Let me preface this by saying I am neither an attorney nor a CPA. Your accountant should be able to give you a definitive answer. That said, I believe that if your donor can show that he/she actually paid $10,000 for the tickets, then that is the amount of the donation for IRS purposes. I can’t tell you how the tax letter should be worded. I am also unsure if you need documentation that the donor paid the $10,000 for the tickets. Again, I urge you to check with your accountant or attorney for the proper wording.
Note that, when you receive something in connection with your donation, like the concert tickets, you can only take a charitable donation deduction for the difference between what you paid for the item(s) and the “fair market value” of the items. So, if you paid $10,000 for concert tickets that had a fair market value of $2,000 (document this via stub hub offering for similar tickets perhaps), the deduction would be $8,000.
Sorry, hit submit too early in my earlier post. Alternatively, if the silent auction buyer paid $2,000 for tickets with a fair market value of $2,000, then the buyer gets no tax deduction.
The individual donating the concert tickets does get a donation for the tickets.
I have a question… I have a local t-shirt printing company that is interested in donating already printed shirts for our cancer patients and their families. This is merchandise that was returned for various reasons but all still have their tags. They do not include our organization’s logo or name, and we will not sell them but are planning to give them away instead. Can I put an actual value on this gift?
Angela,
The only value that can be ascribed for tax purposes is what the T-shirt printing company spent to acquire and produce the shirts. You can thank the company for their generous gift even saying how much they saved you compared to what you would have had to pay to buy shirts. But your tax letter must be only for the company’s out of pocket expense. Obviously you would be relying on the company to supply that number. Hope this helps.
I am on the board of a 501(c)(3) community theatre. We recently had a fund raiser and for monetary donations I sent out appropriate letters depending on the contribution level. But I now have an in-kind donation of radio time and advertising. Per the radio station the value of this donation is at the level that would qualify the donor for season tickets and passes. How do I acknowledge this donation to meet IRS requirements?
Thank you.
Barb,
The donor cannot claim more than he paid out of pocket for the time. If the donor was a radio station they cannot deduct the retail value of their gift of air time and advertising. Only the actual out of pocket costs. I would not attach a valuation to any acknowledgement other than to say something like this: “Thank you for your donation of air time and advertising on your radio station. If we had had to pay for this I understand from your published rates that it would have cost us $_____. Thanks again for your generous support.” However you cannot assert this value for tax purposes. It is up to the donor to prove the cost of the donation to the IRS. I must add I am neither an attorney nor a CPA. My understanding is that of a lay person who has worked in this field. For further clarification you should consult the IRS regulations or your attorneys or accountants.
I work with a therapeutic riding organization, and a volunteer recently boarded a horse for us for several months. She incurred various expenses (feed, hay, vet bills, hoof trims) along the way.
This is an in-kind gift, as no cash was exchanged, but does have significant costs associated ($1655).
Would this be acknowledged the same way as is addressed in the article? We can’t find another cut and dry example that applies to this type of situation…
Thanks!
Katie,
I believe that the out of pocket costs can be considered a donation if the person can verify the money spent.
We occasionally have unpaid volunteers who teach within our programs. Recently we received an invoice from one volunteer for her related expenses. She is requesting a tax receipt to write off her expenses as a donation. She didn’t include her “time” so it seems like we can issue her a tax receipt since we won’t be paying the invoice. My question is is it better to not assign a cash valuation to her expenses and say “thank you for your donation of volunteer services” or list the actual amount she invoiced us for?
K,
Any actual money she spent can be considered a legitimate donation.
We are a 501(c)(3) agency that provides mental health services to children. We have a board member that helped raise cash and gift cards for a client’s family to help fix up their home. Our board member is requesting that we acknowledge the various gifts of cash, in kind donations and time that was offered by friends and family of our board member. None of the cash or in kind donations flowed through the agency. It all went to the board member who used these to purchase paint, supplies and other items needed to help fix up our client’s home. Can we legally reference cash received and in kind donations received in our thank you letters to these contributors? Any other suggestions about how to handle thank you letters for this type of situation? Thank you.
Susan,
I am not a lawyer, and I believe you should consult an attorney in regard to aspects of this matter. However, it is my understanding that you cannot issue a letter that can be used for tax purposes if donations never went through your organization. Whether you can or should in some way thank the givers in conjunction with the board member in some way is another issue. However I would seek legal advice before doing so.
My husband and I started a nonprofit two years ago that provides professional quality photography and videography services for other nonprofits at little-to-no-cost to them. IF we charge, it’s less than market rate for the services. The only “product” that the client receives is the photos and/or videos that we produce. The price of those is based on the service rate.
One of our 2016 clients is asking for the in-kind donation we gave to them for photo & video services. Is there an in-kind donation? If so, what rate do I base it on? Market or the “benevolence” rate?
The organization should send you an Acknowledgment Letter. For Goods and Services, the acknowledgment must describe goods or services an organization provides in
exchange for a contribution of $250 or more. It must also provide a good faith estimate of
the value of the goods or services because a donor must generally reduce the amount of
the contribution deduction by the fair market value of the goods and services provided by
the organization.
I think this article will help you https://www.irs.gov/pub/irs-pdf/p1771.pdf
Brandi,
Your question is unclear. Is the client you refer to a nonprofit to which you as photographers provided these services? It is also unclear what is being asked for. Are they asking for some kind of letter or acknowledgement? The whole aspect of what you do seems unusual enough to me that I strongly advise you to seek legal counsel.
My organization pays an employee for his services. The employee in turn contributes the payment lees withholding taxes back to the organization as a cash contribution. In order to minimize the cash outlay by the organization would it be acceptable by the IRS if we simply deducted the net amount of the payment from his check and recorded it as a donation under his name? The individual also gives in addition to this payment so we issue a annual giving statement which includes both his cash gifts and the return of the payment for his services.
Would you be willing to share the responses you receive on this topic with me? Our nonprofit was planning on handling donations of some services on a capital project exactly the same way. Thanks,
Deb
Herman,
You need to speak to an attorney who is knowledgeable in this area.
My wife is a life coach and professional speaker, and this year she presented workshops to two non-profit organizations. She accepted no compensation for them, and I’m wondering if she can ask for an In-Kind letter, acknowledging, as your sample above states, “While, according to IRS regulations, you will not be allowed to declare the value of your donation from our acknowledgment, we can say that, but for your generosity, we likely would have had to expend approximately $________ for what you gave as an In-Kind contribution. These are dollars saved which we are able to apply directly to support the programs and services we provide for the well-being of those whom we serve in our community.
Both organizations saved thousands of dollars by not having to hire someone to do the workshops, so that would seem to apply.
Thank you.
Joshua,
Yes, that could be done. However, I don’t understand why you would ask for such a letter. It would serve no tax purpose and just be a request that the nonprofit use staff resources for the amount of time it took to look at your request, make the decision to do it or not, and respond. I could even see the nonprofit making a decision to seek legal counsel about the matter, because it is so far out of the ordinary. To me this would all seem like defeating the greater purpose for assisting the nonprofit, by burning resources. I am assuming that the nonprofit has already thanked your wife. Another thought occurs: anyone finding out about this request might possibly think that your wife is a bit naive, and I can’t see that doing her coaching or speaking endeavors any good.
Thank you for your response. Perhaps it’s obvious that I know little about accounting and taxes (I was a teacher for most of my career), but I thought a letter like this that indicates a valuation (what they would save by not having to pay for such a speaker) would serve to reduce our tax burden in the same way that a cash charitable contribution would. My intention was not to cost the organizations any money by forcing them to burn resources; I thought it would be a quick and easy thing to do.
Dear sir,
I am an the staff of a church. I receive a stipend, but it does not cover my contribution of time. Would I be able to make an in kind contribution I could make to cover my unpaid time?
Thanks for your expertise?
Jane,
Unfortunately no. Only actual expenses are allowed to be treated as charitable contributions by the US tax code. Your time is not an actual expense.
Recently, my parsonage allowance was replaced with an in-kind gift in the form of property. There is no parsonage allowance now. However, is the in-kind gift amount still applicable to salary or income to reported on taxes my taxes? For example, should I report ‘5,000’ income plus the ‘5,000’ allowance? Or just the ‘5,000’ income without the allowance turned in-kind gift?
Thank you
Jimmy,
I cannot respond with the certainty one would receive from an attorney or accounting professional, but do begin b f]accessing the following website:
http://www.taxationlawfirms.com/resources/tax/tax-basics/must-you-report-irs-gift-tax-recipient
There, will read the following quote:
The rules for whether or not you will need to file a gift tax form with the IRS begin with considering the amount of the gift that you have received.
In general, as of 2009, the gift tax does not begin until you have gifted away or received as a single donee an amount exceeding $13,000.
The giver does not have to file a gift tax for money or property given worth less than this amount, and the recipient does not have to report this gift as long as the total tax year gift amount from this same donor does not exceed $13,000 (for a single person) or $26,000 if you are a married couple receiving the gift jointly.
However, if you have received more than $13,000, or if you have donated more than $13,000 in money or property to a single individual during the year, you should probably file the federal gift tax form, IRS form 709. While you may not be required to pay any taxes on this gift, filing the form will help the person that you have given the money or property to, as it will show that you gave them the property if there is any dispute with the IRS later on about their own finances or the gift in question.
This may be a good start, and there is more to find when you search of information regarding the recipient of gift property.
I am a professional video producer/editor for a major news network and I volunteer at a 501C3 museum producing educational and marketing videos which they post on social media.
I understand that I can not claim an in kind deduction for time and services, but can I claim an in kind deduction for the market value of the finished videos that a production company would charge?
Mitchell,
Sorry, but the answer is no.
Once you have donated your time and professionalism, the end product,no matter how used and valued, plays no part whatever for you to receive a tax-deduction.
The IRS rules are clear at the onset of the declaration that such services are not tax-deductible, with no follow up conditions.
.
Hi Mitchell,
You can deduct some expenses related to your contribution. I’d suggest you check with a tax-focused CPA in your area. There are rules that forbid your “services” from being deductible but the expenses related to those services might be deductible.
I drive 900 miles each year to an event that I volunteer at (I am one of 3 who produce the event so its a major undertaking). I am allowed to write off my hotel room, food and mileage because I am paying for those things in direct relation to my volunteerism. See page 5 of Publication 526…it tells you a lot about this.
Although I am a CPA I do not “give tax advice” outside of work so please contact a local CPA or perhaps your local university to see if a tax student might help you research what you CAN do. The answer is never “no”, its always “lets see what we can (legally) do!”
I work for a publishing company which includes several newspapers. Can the corporation claim a charitable deduction for the fair market value (at the going advertising rates) of publishing a promotional article for a 501(c)(3)?
Ray,
Yours is a Gift-In-Kind. The FMV may be cited by the receiving non-profit, but only in the way I cite above in my article–what it would have cost the NP “retail.” The money you “saved” them.
Your accountant and auditor will decide how the company books will, or will not, reflect the GIK.
Business expense? Advertising expense? Such a determination must come from within the company.
The NP cannot provide a tax-deduction acknowledgment in the same way it does for gifts of cash.
Thank you, sir! I appreciate the information.
Thank you for this great article! Our non-profit receives support from gyms, CrossFit affiliates, and martial arts facilities in the form of discounted memberships. This directly supports our mission of helping veterans suffering from PTSD through physical fitness. My initial thought is that the discount is considered tax deductible, but the “You cannot deduct the value of your time or services…” statement has me doubting myself. Would you mind helping me out with a couple of questions?
1. Does “your” define specific individual services or does it include organization services as well (e.g. classes provided by gyms)
2. Is the discounted membership fees offered by the supporting organizations tax deductible?
I really appreciate your help.
Robert,
To question No. 1, yes it does apply to businesses — the IRS will not allow tax deductions for services. That is true no matter the source of the services provided.
And the second question is one to be answered by the donors of the memberships.
No doubt they have extensive prior experience with such donations, and they themselves are the only ones to declare to the IRS what is legal—business expense, advertising, etc. It is entirely up to them.
The only thing you should do is follow my suggestion in my article above for the type of acknowledgement letter you will send to the donors, recognizing the discount as money which was saved from spending for the full membership, whether the saving is yours, or the veterans who themselves received the discount and personally paid the difference.
Either way, that is how you should recognize and publicize the discounted memberships—and possibly with some compelling photo opportunities of some vets at their workouts using the donors’ facilities, made possible by your organization doing its good work.
I am a sign language interpreter and have donated my interpreting service for an event. I normally would charge for that time. Can I ask for a letter stating the time and how much the service is worth for my taxes? Thanks!
Corinna,
Unfortunately you cannot do that. All the IRS will allow is your out-of-pocket expenses.
For the last 5 years I have donated my time to running a food pantry for my church, frankly I stepped into it because if I did not than a service to our city community would close. I do have managerial and accounting skills and at the time I was not employed so I had the time. I still am not employed by another company and receive only a mileage amount for the miles on my car travel to and from home (4 days a week, and I spend 4-5 hours at the food pantry, not to mention donation pickups from various grocery store donors). Which looks like it will be discontinued since the funds have run out in the account.
My questions, there seems to be a disconnect of how much real work this is and the cost to me, my time is valuable to me. How do I convey this (there are a number of people that volunteer their time at the church in various capacities), can I submit a time sheet on a given week and than do a average hours worked, with the rate/hour based on my last job? For 5 years? I know it would not be an amount they would have spent, since they were clear that without a grant they would not keep the pantry (and clothing closet) open, but they had a we feel good having a FP and CC in the church.
Second question – I use my laptop for the job, even 5 years ago the cell phones that were out had more RAM/better processors than the computers that were here. Can I add that to a donation list or at least a real commodity that is utilized.
Third – I have purchased items like ink – for my personal printer that I also use, and pens, and other misc office supplies, which I use both for myself and for the food pantry, how do I separate them out? Amusingly the printer is a high end Dell printer that the church office placed in the church rummage sale for 10.00 and I paid out of pocket for.
—In short I feel increasingly un-valued as a volunteer and as a type of donor. Yet I am being asked to do more and more, for no compensation.
Debra,
(1) The food pantry management is missing something here.
That organization itself should have time and schedule forms which you volunteers can fill out weekly regarding the time you give. There should be some sort of annual tribute gathering for the volunteers to be recognized—and appreciated. The place where I volunteer provides an annual luncheon for just that purpose.
They are missing a good thing too, where proposals to donors for money could be greatly enhanced when they can cite the number of volunteers and the total hours they donate in a given year to serve the food pantry. That is something which would be impressive and compelling.
(2) Sure, laptop time, while not tax-deductible, nor is your time at the food pantry, nonetheless is a Gift In Kind as sort of a donated professional service.
(3) You should be able to reasonably determine the cost of the ink and other supplies which are used on the food pantry’s behalf. You give them a letter with that information, and ask for a form which you can present to your tax form preparer to possibly declare those out-of-pocket expenses you absorbed for the good of the food pantry.
The food pantry, it seems, is rather oblivious to the worth you and other volunteers are to the organization. How that can be corrected will require some thought on your part to suggest recognition without seeming to blow your own horn.
I think an innocent and helpful approach would be for you to provide the best tally you can come up with regarding number of volunteers and hours in a given year and suggest to management that perhaps that data would be a very effective solicitation tool to impress and motivate donors. As well, with such an imposing listing, it should be obvious that the volunteers should be recognized, especially those doing so for the longest time.
I am becoming more involved in a 501c3 non-profit locally and have given, what I believe to be three different types of GIK items.
The first being pro bono interpreting/translation services for an annual gala. After reading this article it seems as if this is not deductible though, if my time had it not been gifted, would have costed them $75 for the event if they hired anyone in the area.
Second, I hand made items for them to sell at one of their many events and I think I understand the only amount I could claim is the cost of my supplies, not the price in which the organization sold them for? (That price was determined by me and the cost of selling those items at craft shows.)
Third, I purchased some key chains for the organization and donated them to either sell at one of their events or as a donation level incentive to have people donate a specific amount. Is the cost of those key chains something that can become a deduction?
Thank you!
Monique,
How very fortunate for that non-profit in that they benefit greatly from your generosity in a number of ways. I know you do your good works from the heart, but you should receive appropriate credit from the organization, and any possible tax deduction.
The organization can do its part by recognizing your GIK according to the example I give in my article. The organization cannot certify value, but it certainly can declare the value to the organization in terms of what your GIK would have cost them—whether the organization would have bought such services and items in the first place. It’s just good donor relations to cite such things in that way.
To your three questions:
First, do scan the following for what you need to know relative to what you can and what you cannot deduct when it comes to GIK.
— IRS Publication 526 (two ways to access)
https://www.irs.gov/publications/p526/index.html
https://www.irs.gov/pub/irs-pdf/p526.pdf
1. See the quote from the section, “Contributions you can’t deduct.” (Value of time and services.)
The quote is explicit: “You can’t deduct the value of your time or services.”
2. See your tax preparer should you have enough out-of-pocket expense to file for a deduction, being sure to have receipts in hand. This is between only you and your tax professional. The organization, again, should only cite the value to them in terms of those costs. You cannot use any documentation from the organization as being valid for tax relief.
3. The key chain expense can only be possibly applied to your tax return with advice from a professional. The organization treats the value in exactly the same ways described above.
As you scan IRS Publication 526, I know you will readily see how any and all of your generous contributions are treated, and you can follow the rules accordingly.
Thank you for this. A question: Let’s say the furniture maker donates 10 tables to a nonprofit. Each table’s donated value is $100. Can the nonprofit then provide those tables to an auxiliary volunteer group operating under the nonprofit’s 501c3 for that auxiliary to sell at a retail shop they run in order to enhance that auxiliary’s annual donation to the parent nonprofit?
Dan,
Before we move on to the “sure, you can,” part of my reply, there are two comments I think must be considered.
1. Whether or not the furniture maker crafted the 10 tables for an originally-asked purpose, and one which the furniture maker expects regarding the use of the tables.
What is that expectation-understanding for making the 10 tables in the first place, if any?
2. If the donation is unrestricted, then yes, the auxiliary can certainly take on the sale of the tables.
Caution:
To avoid any possible disappointment on the part of the furniture maker, the ladies of the auxiliary must try hard to sell the tables for more, at, or near, the estimated $100 value of each table, the value which I expect was cited by the furniture maker.
There must not be a “fire sale” with the tables sold for an amount which would be offensive and disappointing to the maker for the time, effort and expense in making them for the organization.
Tony,
In my case, the donation is ~$7,500 worth of chocolate for unrestricted – “whatever you need it for” – use by our organization. The chocolates were not created at our request, and would otherwise have wound up being sold in our donor’s retail shops. It sounds like we would have the green light to go ahead and sell the chocolate. This was a new and unusual scenario for us, which felt like it needed some research and conversation about propriety before moving forward.
Dan
Dan,
We can be sure the donor does not expect organization staff to eat $7,500 worth of chocolates.
There had to be some reason for such an unusual donation. What was the message accompanying the donation of the chocolates? If it was “whatever you need it for,” then you have your course of unrestricted action to follow.
Chances are the selling date may be out to a point where, though edible, they may not be OK for his retail sales.
Depending on how packaged, maybe some boxes can be given to special donors and the chocolates donor could get additional credit that way.
You can no doubt be creative in the presentation. “We’re sweet on you for your generous support.” Not so hot, I know, but you get the idea.
Or, if it is OK to sell the chocolates, go to it.
In any event, just be sure that the chocolates do not turn out to be questioned if the stock shows it being outdated, regarding appearance and freshness.
Hello. Very good article. I’m trying to find on the IRS website or a publication that explicitly states that a non-profit cannot determine the value of an ‘in-kind’ donation in a thank you letter. It may be implied as there are all sorts of publications for donors in determining the value of their donation, but looking for something more ‘black and white’ from the non-profit’s perspective.
Greg.
Thanks.
IRS Publication 526 will have all you need to know. See the section about non-cash donations.
https://www.irs.gov/publications/p526/ar02.html#en_US_2015_publink1000229839
A key declaration in that section reads following, with quotes, and from it you can see what the donor would expect from the receiving non-profit — with no values involved. The values are up the donor to declare and prove.
“If you make any non-cash contribution, you must get and keep a receipt from the charitable organization showing:
— The name of the charitable organization,
— The date and location of the charitable contribution, and
— A reasonably detailed description of the property.
(End of quote and no mention of value.)
The charity cannot certify In-Kind value. It can and should only cite the value to the organization in the way I provide in the sample letter in the article.
I guess as a follow up to my initial questions, does it change the equation if we were to agree to issue receipts to in-kind donors for this third party administered event?
Thank you,
Jason
I found this article very interesting. This past year has been my first foray into non-profit accounting. I am currently acting as Controller at a non-profit home health and hospice agency. We have a third party putting on a golf fundraising event for us, and have received inquiries about our tax id number and potential deductibility of raffle prizes and other awards donated for the event. All that has currently been requested of us directly is what I believe to be a blanket letter stating what the funds raised at the golf tournament will go toward, some information about our entity and our tax id number. I assume that, as in the other instances cited here, it will be up to the donor to determine the value of any tax deduction with the help of their tax professionals. However, from a reporting perspective, do I open myself up to needing to collect donor information for these individual in-kind gifts if we offer our tax id number which I believe would insinuate that the gifts could be tax deductible? Or is it still fine for us to just acknowledge the total gift from the organizers in our records?
Jason,
Your tax ID number is public information—some organizations even print the number on their stationery. You are not implying anything of concern. What the ID number does give the third party, and others, is your stamp of accreditation as a non-profit organization.
I assume the third party is a professional golf fund-raising event planner?
If that entity is soliciting and collecting prizes and awards in your organization’s name, I think you owe it to the donors to accept them as gifts to your organization and to issue whatever is appropriate acknowledgment.
I do not think you would want donations to be entered into the books of the (for-profit) event planner, and to have them simply turned over to you. Maybe you would, but how would the donors feel about that?
You should use a blanket form acknowledgment, or a more personalized acknowledgement for what you deem as major support, you do just as you cited, and just as I suggest in my article.
That is to simply describe the item, what you “understand” as its worth, and the generous donation’s positive impact on your organization.
Great article! I’ve been reading conflicting info about this, but if a donor does not assign a value to the gift, but it is of value (IE 100 diapers, computer monitor, etc) is the nonprofit allowed to assign a fair market value for bookkeeping purposes, both for Development and finance? This value would, of course, not be assigned to the GIK from the donor’s acknowledgement perspective.
Thanks
Geoff,
Just determine what the GIK would cost “retail” as best you can, then use that FMV internally as you desire.
The only time we entered a GIK into our accounting system was when such a GIK directly relieved a budgeted operating or program expense.
Otherwise, we only entered those values into what we claimed as achievements to our fund-raising program as a “paper credit” to our development activities.
We have companies who donate their truck drivers time (paid by the company) and gas (paid by the company). I assume both are still considered in-kind and we cannot give them a receipt, correct? We do acknowledge them for the value they provide us, since it’s so appreciated. What if the company gave us a donation, and then we paid the driver and re-imbursed for gas. Would that be “allowed” and then the donation could be considered a tax donation? Thank you
Susan,
Correct, with the first part of your comment.
Acknowledge, as I suggest in the article, as you “understand” the value. And the extra touch regarding that they “saved” you from incurring the expense, is a good thing to say too.
(Even in those instances where a non-profit receives an In-Kind donation of something they can use, but which they would not otherwise buy, the NP still can cover both situations by saying something along the lines of, “Were we to have purchased ___________, it would have cost us $ ________.)
Correct, as well, in the second part of your posting that a company can make a cash/check donation given directly to your organization, and you in turn can directly pay the vendors. (Don’t have the mutual transactions down to exacting decimals. Round off the values. It does not really matter, it just looks better.)
While the vendors can then claim tax-deductions, they also know that they must as well declare your payments as their earned income.
They should be in position to know which method would be better for them. That is something you do not contend with.
Awesome in for for Non Profits. This article coincides with an idea for an idea I have.
Suppose a volunteer were to donate their time, say to teach a skill for an educational NP, that is an in kind donation, right?
And, suppose one turns that model into an organization, would NPs have to submit proposals to get the donations?
Lance,
Right — in answer to your first question. Absolutely an In-Kind gift.
I am not sure about your meaning with the second question.
Is it that the “model” comes from the “skill” to which you referred earlier?
If so, are you thinking that the model could then be the stand-alone core principle (Mission) required to set up a new non-profit organization?
Or maybe you are thinking that the skill taught — turned model — could be part of what a number of non-profits do on an on-going basis for those whom they serve?
Either way, or in any other way, the skill which was taught, should it be for a new or improved program, project or service to better carry out the mission of a non-profit, or non-profits, would certainly qualify for the seeking of donations from any source.
That would be considering there are any new or increased expenses connected to that program, project or service involved with that taught skill or model developed.
Any further enlightenment would be appreciated.
Does your in kind donation have to go through a 501(c) nonprofit to get the matching $$
Tammy,
We need more information to better understand your question.
However, from what you did write, it’s not a tax-deductibe-possible donation in the true non-profit context if an In-Kind (any gift) is not given to a 501 c 3 organization.
If there is some sort of match offer/challenge to attract such donations, the giver of the matching would need to be consulted regarding that donor’s wishes or expectations.
The matching offer and the donations made to it, can all of course be made in a non-501 c 3 circumstance, but no donor can expect whatever tax deduction they may wish to otherwise claim.
I am attempting to craft an in kind acknowledgment letter for some furniture we purchased from a vendor/furniture store. The furniture was actually purchased at a significant discount, so it was not a complete in kind donation.
I am not sure how to work the letter. The donor is requesting acknowledgment for tax purposes, which is understandable, but I’m not sure how to word the letter when goods are partially donated and partially paid for.
The IRS states in the document, Charitable Contributions : Substantiation and Disclosure Requirements for Exempt Organizations, page 2 under “Written Acknowledgment” #5. “a description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution”
While we did not provide goods or services, we did pay a discounted amount for the goods we received.
Do you have suggestions on how to write this acknowledgment letter?
Hi Tony,
Thanks for your articles. I own a catering company and we often donate good and services to non profits in our community to a generous degree. Frankly, we are discontinuing the practice. Just tired of being treated like “second class” donors.
Stacy,
I know exactly how you feel. That’s one of the main reasons I wrote and posted my article regarding In-Kind donations.
As an old, long-time, non-profit fund-raising practitioner, I have far too often been made aware of the short-sighted attitude of many receivers of In-Kind donations which they communicate to their generous and caring donors of such gifts.
You may have noted my strong references to such thoughtless attitudes and practices in the section of my article above, titled:
— “Don’t Be Unkind to In-Kind”
There, you can read about the way a non-profit would have terribly slighted a major donor of paint for the organization’s new building.
There too, I have cited my own personal bad and disappointing experience when my donation of the final month of my consulting contract fee was not regarded by the organization as “real money.” I was not even a “second class” donor. To them, I was no donor at all.
Thus, at the end of the article I declare to all who would would think in such narrow and cavalier terms:
— “Never Take In-Kind Gifts for Granted”
“The final message here is that you must regard all types of “In-Kind” gifts with the care and consideration they deserve. It’s so easy, and so appropriate to acknowledge “real” cash and securities properly. But all too often when it comes to In-Kind gifts, it’s another kettle of fish. It should not be.”
Stacy,
Maybe it would only take a little reminding on your part to those non-profits regarding the insensitive way they do willingly accept your generous In-Kind donations. If they do not get it, then move away and tell them why, then move on to another worthy charity.
Through it all, however, reconsider your plan to discontinue giving. I can see from what you have been contributing that you may feel less fulfilled personally if you discontinue your donations.
Certainly, you care about what is good in your community–even if some of the receivers of your In-Kind donations seem to be uncaring.
And, we know there are non-profits out there which would greatly benefit from your generosity, and at the same time, know how to show it gratefully, enthusiastically, and treat you as the first-class donor you are.
We are planning for an annual fundraising bike ride to benefit one of our programs. Each year, we have one bike shop want more recognition than seems appropriate for it’s contribution. The shop donates about 5 hours of bike mechanic support (one person fixing up bikes as needed) and a bike (shop is valuing at $500). The shop also wants to donate water bottles to our event, but wants recognition for that donation. The shop says the water bottles retail at $6 each and will be donating around 800 = $4,800 worth of sponsor recognition they are asking for. However, these water bottles aren’t something that we’d be paying for anyways if we did not receive the donation. Do we have to give recognition for the water bottles, if it isn’t something that we are needing/ it’s not saving us any money like someone donating paint for a building, for example? Also, would the recognition level be based on the retail value of the bottles or the cost the bike shop paid to get the bottles made? Thank you in advance!
Hannah,
1. Would you think that your bike riders would like to have a complimentary water bottle?
2. Would such a thoughtful gesture add even more professionalism and organization to your event?
If your answer is yes to those questions, then you absolutely should gratefully accept.
It makes no difference that you were not going to buy water bottles in the first place.
When such an In-Kind donation provides a welcome, useful, and appreciated service, then you run with it—or in this case, bike with it.
For our Orchestra’s 10K run, a grocery chain donated one thousand bananas for our runners, an In-Kind donation of something we would not at all pay for ourselves.
That special benefit to our participants was a hit with them. A great deal of good will was generated for the image of the grocery chain. The same will no doubt be true with your complimentary water bottles.
And, as we did with our banana donor, you should do so as well for your water bottle donor:
— accept with sincere gratitude. (The shop is already generous with its other donations.)
— recognize fully and publicly at the value of what the bottles cost retail.
While in your acknowledgement you will not say how much the donation of the water bottles “saved” you from spending, nonetheless, you can say that such a generous donation, which you understand is valued at $_________, helped to make the bike event a great success, and that the bike riders were very pleased to receive the gift of the bottles from (Name of shop).
Interesting post – I am thankful for the details , Does someone know where I would be able to find a fillable IRS 1024 version to fill out ?
We recently had a corporate sponsor pay for the catering for a fundraising event. We have the receipts and know the amount down to the penny. Since we never directly received any cash, I suspect this is an in-kind donation. It seems that the value of the donation is very well established, as we have the receipts for the exact amount. Do you have any insight on how this should be treated? Many thanks,
Greg
Greg,
Yes, you are the recipient of a very generous In-Kind gift.
Whether you have receipts to the penny, or if you know from other valid references regarding the expense paid for by the corporation, you treat such gifts in the same way: that is, to simply (and gratefully) acknowledge what you “understand” was the expense paid for by the corporation.
How the corporation claims any benefit for the donation, is entirely up to them. The In-Kind donation could be part, or not, of a claim for a tax break. Some, or all, may be claimed as a business expense. Some or all applied to its PR/advertising budget. And other ways. It’s totally their responsibility.
Thus, all you should do is acknowledge the In-Kind donation using my example in the article above, which only refers to what you “understand” was the expense paid for on your behalf, and the fact that their gift “saved” you from spending those funds so you could even better carryout your mission.
The corporation knows how to handle such transactions, and they know that you cannot/should not “certify” an In-Kind donation. Even if you did, it would be of no legal or otherwise applicable worth to them.
You can only acknowledge the corporation’s generosity in the way I suggest from this posting, and from the example I have provided in my article about In-Kind gifts.
We recently had an Olympic team come to Alaska as a benefit to our Youth athletics program. While here the team did outreach in schools, and conducted their regular training. They also helped us with a fundraising event. We covered all their costs, but made it back and more at the event.
Rather than house them at a hotel, we housed them with one generous individual – who also hosted the fundraiser event.
By offsetting the cost of a hotel (appx $150/rm/night, 10 nights, 18 people) and a venue (appx. $5,000) for our event, does the generous supporter qualify as an in-kind donor? How should our letter recognizing their kindness be worded to give them the best tax benefits?
Thanks!
Ben,
That generous donor most certainly deserves all of the credit and recognition possible, and deserved, from your organization regarding the significant expenses you did not need to pay.
I suggest that your acknowledgment for that support be worded from the example in my article above.
The possible best tax benefits accruing to the donor can only be determined between the donor, his or her accountant/attorney, and the IRS.
The best, and only, thing you can/should do, is to cite the approximate expense your organization did not need to pay because of the donor’s generosity — those funds then, being available for your organization to continue to carry out its good work.
As my article, and the example, make clear—you should not provide an acknowledgment or receipt of sorts officially in the same way as you would recognize a gift of cash or stock.
Just the value should be mentioned, as you “understand” it, and how that amount “saved” you from spending your own funds.
Thank you for this article. I work for a small not-for-profit and we receive gift cards as prizes for raffles (or competitions). Should these in-kind donations be tracked as revenue in our spreadsheets? Or should they be tracked in some other way?
Michael,
This topic comes up from time to time, and each time it does, I try to glean from the IRS its latest ruling regarding gift cards.
As I see the issue today, the regulations appear to lump gifts made through gift cards in the same category as gifts of straight cash.
My guess is that it would be appropriate to acknowledge a gift made with a gift card in the same manner as an organization acknowledges gifts made by gifts of stocks, cash, check, credit card, or on-line cash transfers.
As far as I can tell, these regulations are still “proposed,” but this appears to be the only guidance there is currently, and I would suggest that you act in that way.
A question for the community regarding LOGOS –
My organization gets both in-kind and cash gifts for a certain program, and a lot of them (great!). But, with so many donors to acknowledge and so many logos to include — how does one order things on the program materials?
Standard practice is of course by amount/alphabetical, but…does one mix the in-kind and cash support in the “logo soup”?
Or somehow design it so the in-kind support is on another, separate line where it is ordered amount/alphabetical(not always easy to do, design-wise?
I know this is a good problem to have, but I want to be sure everyone is acknowledged appropriately. Thoughts are appreciated!
Kate,
A happy problem indeed.
And one I suggest you can make even more pleasant when it comes to mixing your cash and In-Kind donations “soup.”
But first, logo-intense is how your donor recognition practice seems to operate.
Why not simply list the names of the contributors and forego the logo? It seems to me that various logo sizes, colors, legibility and other factors would make your donor “soup” murky.
Sticking with donor names only, we made it simple at The Cleveland Orchestra during my twenty years there as D of D, as I was the one responsible for donor recognition overall, and for specific listings on walls, Annual Reports and weekly concert programs. Maybe your program materials could be produces in the same way.
For example, each year, our Annual Report’s Donor Recognition page listed all of the different dollar categories we felt were appropriate to the range of donations we received. Such a listing of sizes of donations will naturally differ from one organization to another.
The heading of the listing made clear that the respective donors listed reflected their total cash support to our Orchestra for that given Fiscal Year, including Annual Fund, payments of capital and endowment pledges, sponsorship, underwriting, the deductible portion of Patron tickets they bought for special events, and the Fair Market Value of In-Kind donations.
That way of combining all of the cash and in-kind values in one amount per donor, and blending cash and In-Kind “Fair Market Value” (FMV) donations overall, was received with appreciation by our donors.
There was never a complaint or comment regarding the commingling of cash and In-Kind. The FMV donation of a printing company producing our Annual Report for say, $15,000 was right at home and comfortable in alpha order with the “XYZ” company giving us the same amount in cash.
There should be no problem in coming up with a FMV or a “what it would have cost you retail” general amount for any In-Kind donation.
If you must, or want to continue the logo publication for recognition, you can do so with the combination process as I have described for cash and In-Kind donations..
We received a donation of $69K from Second Harvest to help pay for capital improvements at one of our St. Vincent de Paul facilities. The money was paid directly to the contractor. Is this a In-Kind donation?
John,
Absolutely, it is an In-Kind donation of the very best kind.
Second Harvest (if the organization desires), should be recognized in every possible way, and its key officials would be featured guests when you have the celebration ceremony/reception upon completion of the improvements to your facility.
Why SH, itself being a non-profit organization, did not contribute the 69K directly to your SVdP organization is, of course, not clear to me.
Depending upon IRS regulations, such a donation would be truly such for SH were it given to you, then to have you in turn pay the contractor. SH might have been entitled to certain benefits that way, insteadof simply paying a commercial invoice.
If such opportunities come up in the future, I suggest that your respective attorneys and accounts determine what is best for all parties regarding those applicable IRS rules.
we recently had an event and the catering company gave us an $850 discount. Would the $850 be considered an In-kind donation?
Trish,
Yes it would.
And you can acknowledge in the same way the example suggests in my above article.
Always use the “we understand” words when it comes to citing what the caterer charged in the first place, and then how the caterer “saved” you from spending $850 so those funds could be freed up to do your organization’s good work.
The “we understand” also helps if, by chance, the original total cost as given to you by this caterer, was measurably higher than another caterer’s bid. That would mean that the true Fair Market Value (FMV) would be in question, so the “we understand” reference to the cost gets you away from sometimes fuzzy FMVs, something the caterer will need to justify with the company’s accounting procedure and its tax specialist.
Thank you for the information on this site! Our non-profit is setting up an online auction site for the first time. We have not had in kind donations before so I am drafting a letter/receipt for the donors. Our first donors have donated stays at their hotels, B&B, and retreats. I have two questions: 1. Is your example phrasing above in the “Sample Acknowledgment for an In-Kind Gift” sufficient for this type of donation? And, 2. Are the people who win the item on the auction site with their high bid “donating” that cash to our organization – do they also receive a receipt? Thank you.
MacKenzie,
To your No. 1 question, yes, I suggest you use that format and apply every time the expression, “we understand,” when it comes to what you understand is the actual Fair Market Value (FMV) of the items donated. It is up to the donors of such GIK to justify whatever FMV they might claim when working their tax reports.
No. 2 question could have your acknowledgments cite, again, what you “understand” the FMV to be of a particular item if a donor bids more than that amount. That amount paid by the bidder is generally eligible for a tax deduction. Here again, the true FMV of the premium, from which they base the amount above as a contribution, is always in question. It’s something which your organization cannot certify.
You can acknowledge that there may be a tax deduction available to them for the amount above the FMV bid requirement, according to the applicable rules of the IRS.
In addition, here are a few resources which directly address your questions.
— IRS
Charity Auctions
https://www.irs.gov/Charities-%26-Non-Profits/Charitable-Organizations/Charity-Auctions
— eHow
Are auction items at a charity event deductible?
http://www.ehow.com/info_8151274_auction-items-charity-event-deductible.html
— Irving Tax & Financial
http://www.irvingtax.com/22710/Are-Charity-Auction-Purchases-Deductible-Contributions/
We are considering a GIK to a large university. The appraisal of the GIK was over $4 million. We understand we cannot take any tax deduction for this GIK but what would be a reasonable expectation from the University as recognition for our contribution. To date, they have put nothing forward and in fact want to shuffle any work required to meet HIPAA off to a for-profit company once they receive the gift! We are just not quite comfortable with what they have done or not done to date. Thank you
Susan,
The type of GIK, how it will be used by the university—the value of that GIK to the university, are the key points to address first, as I see them.
How this all relates to HIPPA, and to the involvement of a (commercial) for-profit, are obviously factors well known to the university’s development officials. And they should be explained to you.
From your perspective, you are considering making a very major gift, and it appears the university is willing to accept the gift. I hope they are not blind to that fact, and not find themselves far too embroiled in policies and other entities to be supremely grateful, and give you very public recognition for the appraised value—what your GIK would have cost them “retail” to pay for the GIK.
From prominent mention in publications of all sorts, given a naming designation for recognition, etc., all such expressions of appreciation are certainly to be expected.
It depends from where you understand that you cannot take a tax deduction. While the university can only say that it “understands that the value of the GIK is $ _________,” perhaps from the official and accredited appraisal, you should obtain the exact ruling from your attorney or accountant for any tax break, be it from a charitable point of view, or relief as a business expense.
How your GIK fits with HIPPA regulations, should not at all directly affect you as the donor. But, I agree, and do have discomfort, regarding the entry of a for-profit in the transaction. Yes, it is quite common, especially for universities, to have working and legal relationships with for-profits for say, research and development. However, I suggest you take care to insist on total follow-through to the ultimate use of your contribution. Watch for any possible personal or business gain which could compromise your gift.
If the university earnestly wants your GIK, then they should be willing to accept any of your reasonable conditions for its use. And to certainly to satisfactorily answer all of your questions.
Through what appears to be something short of a financial and policy muddle, the university should go back to the basics and reinforce their understanding of the word — Gratitude.
Do you have to put tax ID number on an in king letter?
Pamela,
From what I know, it is not necessary, unless asked. At our Cleveland Orchestra, is was hardly ever requested. Only by community foundations, and other such entities. Never GIK donors.
Tony, our small arts center holds a “Dining for the Arts” event where 10-12 individuals host a dinner in their home at various times over the summer. We have a sign-up event where guests then sign up for the dinners. The hosts set their own amounts (varying between $50-200 each). The guests then pay the arts center that amount. For the first time, someone has asked for a donor acknowledgement letter. I don’t know how to do that except calculate the FMV of the dinner, which means putting the generous host through a time-consuming exercise six months after their event, and then letting the guest know what amount is deductible. Since we are so small, I guess we’ve assumed that people know they are getting a nice dinner to benefit the arts center and don’t care as much about the deduction for any additional amount over what the dinner might be worth. Otherwise we’d have to ask each host to give us the FMV as they are putting together their menu for the sign-up event, when they likely have little idea of what the dinner will cost a couple of months in the future. Any advice you might offer as to how we acknowledge the contribution of the guests? We have not previously acknowledged them.
Lori,
My wife and I just talked this this situation over as if we were going to produce and present a donated lasagne dinner to be in our home on March 20. Today is February 1.
We have invited twenty people, and they are in the process of sending their checks to your office, the checks made payable to your organization. The donation amount is $100 per person.
As you have already received some checks, and more will be coming prior to March 20, there is no practical way for you to promptly acknowledge any of the checks you will receive before the pasta sauce settles after March 20, so my wife and I know how much we spent, i.e., providing the Fair Market Value deduction for each and every $100 paid to come to our dinner.
On the other hand, each $100 check coming in to you must be acknowledged, so how do you keep the patrons from thinking that the entire $100 is indeed fully tax-deductible? You are obliged to let them know you received their checks, so how are the acknowledgments worded now?
Plus, Joyce and I could find it inconvenient and not too practical to take the time to come up with the FMV of each dinner, not to mention needing to provide documentation to you via receipts, etc.
So, ten to twelve hosts, and maybe each having about twenty or so guests, does make the practice of providing the FMV of each dinner to each guest a nightmare of sorts when you might be involving over 200 patrons of the dinners.
You will need to do so for the one so far asking. Maybe only on demand.
Maybe a way out of sorts can be gleaned from the following webpage of the IRS and another idea I have.
https://www.irs.gov/uac/Eight-Tips-for-Deducting-Charitable-Contributions
Of the eight tips listed, here is no. 7 in part:
7. To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.
Lori,
Because the IRS rule allows for some space regarding the under $250 reporting level, maybe you can arbitrary come up with a factor/number to be applied to all dinners’ donations, such as say, $25 to be the FMV across the board.
Or, if the dinners would have considerable disparity in regards to the hosts’ costs, you might come up with such a FMV considering each type of dinner from each of the hosts’ advance estimates. In our case, for example, my wife and I could give you a reasonable esteem far in advance. We could probably tell you that for each guest donating $100, it would cost us $25. That way, as each check comes in from each patron for any given dinner, you can then and there let them know how much of the amount they remitted is tax-deductible.
Great information! We are a fairly new nonprofit. A website developer made our website and discounted the price from $2000 to $450 because we were nonprofit and as a contribution to us. What’s the proper way to acknowledge this “donation”? We would like to send a written acknowledgement while ensuring we stay within the guidelines! Thanks in advance for your response!!
Neeta,
Use the sample acknowledgment I have provided in my article above. Work your particular payment/donation to the way I suggest. Take a good look at it. It is made to order for your needs.
But, in addition, I will give you my way of seeing what you need.
Because you are paying a portion of the website work, with the balance being given to you as an In-Kind donation, you may want to consider saying something along the following lines, should you get the developer’s invoice in hand:
— “Enclosed is our check in the amount of $450 as partial payment for your welcome, appreciated and excellent work to create our new website.
(Or, the $450 payment may be made in a separate letter. If so, simply adjust the language accordingly when you acknowledge the In-Kind portion of the total charge.)
We understand that the full cost to us would have been $2,000, but your generous and thoughtful In-Kind donation of the $1,550 balance greatly relieves our expense budget, and even better, allows us to use those funds to help carry out our organization’s good work.” —
Neeta, something like that, so you do not certify the value of something which you really do not have an idea, but rather to acknowledge what you “understand” from them to be the value.
A generous donor paid $20,000 in catering costs for a fundraising dinner my organization put on. The donor has the receipt and reported the amount to us. Can we send them an acknowledgement letter stating that their in-kind contribution has a fair-market value of $20,000?
Matt,
The Fair Market Value “FMV,” would be so stated as far as what the caterer charged in writing on the receipt put into the hands of the generous donor who paid the bill. You need not say much more than what I suggest in my article, which is to let the donor know how much your organization “saved” from spending that amount, so you could use that $20,000 to do your good charitable work.
In the future, consider for example, that the donor could send a check made payable to your organization in the amount of the dinner charge. In turn, you send your organization’s check in the same amount to pay the catering bill. Perfectly legal. Your donor then has all of the tax benefits allowed by the IRS for the cash contribution—which allowed for satisfying the donor’s intent to pay for the dinner.
Otherwise, the donor must work out any possible tax break with a professional, according to IRS rules, regarding In-Kind donations. You just take great care so as to not “certify” anything of a value which is not exactly known to you.
A hotel has quoted me a price of $600 a day for a banquet space for an upcoming festival my company runs. I want to ask them for an in kind donation of the space. Can they still offer me the donation even though they sent me a quote via email?
Nicholas,
The initial quote is a stand-alone, routine, presentation of the cost of the space to you or to anyone. It is apparently what the hotel considers as the “market value” of the rental space. It means nothing to have them tell you the cost, then to have you subsequently look to them to donate the space.
From there, you can work your presentation to the hotel seeking a donation of the space for the time you need—asking for their In-Kind contribution.
If you have good luck, perhaps the full charge of $600 will be donated. Or, maybe they will reduce the rate. Either way, full or partial, any In-Kind donated value should be gratefully acknowledged in the way I suggest in my article above.
You do not certify the value, as much as you simply state that you “Understand the value of their In-Kind donation to be $ __________, which allows you to use those funds, which you need not spend, to help carry out the good work of your organization.”
Something along those lines.
Good luck in getting the donated space.
A member of our non profit organization rented two spaces for her business, she has graciously let us use one of the space. The space cost $100.00 per month, she is not charging us for the space and is requesting a letter at the end of the year for $1200.00 that she is paying for renting the space. Can we send this member an in-kind donation letter?.
Thank you.
Linda,
The donation is indeed an In-Kind donation.
I suggest that your letter of acknowledgment be crafted in the way I cite in my article above—that the generous donation of space “saves your organization from spending ….”
You cannot issue an acknowledgment in the same way you would cash.
Any tax break sought is totally up to the donor.
However, since she is paying for the space, and in turn, giving it to you, the generous lady could have you pay the monthly cost to her, and she could then send in a like amount donation to your organization. That way, she gets a true tax-deduction as the IRS allows. The downside is that she will need to report your payment of rent as income. Maybe that’s something she could discuss with her accountant.
By the way, before you enter into this seemingly good deal for your organization, there are some things to consider. Following is a little essay I was thinking of posting sometime on our website. It is not fully edited, but the main points should be useful to you. It’s not the proverbial “Looking a gift horse in the mouth,” but even given free things sometimes to have strings attached.
— Donation Of Office Space To A Non-Profit Organization
“We have been offered a generous donation of office space which we sorely need.”
Good news, but, before you go too far, I would like to review with you some conditions you and your colleagues might not yet have addressed.
From my experience operating my development office for a time in a donated space, here are my comments:
Make certain that the space has a real connection with your needs. I suggest you make more of an inquiry — of exploration, if you will — because you will need to know how many square feet of space will serve your needs, what layout is best for you in which to operate most efficiently, and what basic connections you will require for your computers, telephones, copy machine, etc.
You don’t want to obtain donated space that you later find you cannot possibly use. You don’t want to be in a position where you must later leave what turned out to be an undesired space donation.
You must think about the building owner’s insurance responsibility — and especially yours — regarding accidents to your staff, your visitors, and damage to your own installed property. Too, security to protect people and property — yours and theirs — must be considered. And, because of the way the building is designed and how other tenants might operate, must your regular business hours and your special schedule of operation be the same as theirs? You need to know that.
Will heat and electricity be provided, or will you be expected to pay some sort of estimated expense? Will those utilities’ costs be fixed by meter to the area you use, or does the heat, water, electricity, etc., function overall to all tenants? How will that expense be shared? How much will it cost, in any event, and can you afford it?
Equally important, is that the donated space be located in an area best suited to the convenience and access of those whom you serve, your staff, and your visitors. Will there be parking accommodations and will there be a charge for parking?
I believe that the many explicit conditions, procedures, and the inevitable surprises — good and bad — surrounding donated office space can be best addressed when you have the opportunity to personally meet to talk about the possibility with the people considering the donation and to have an opportunity to personally and thoroughly inspect the facility to ask questions.
Of course, one of the biggest issues to resolve, is to have a clear and binding understanding regarding when you intend to vacate, or when you are required to vacate — with protection in between so that you are not evicted.
Linda,
Maybe some of the points cited above may be worth looking into.
Non-profit fitness center donates (its own) gift certificates to other non-profit organizations. How is the transaction recorded when the gift certificate is issued? Redeemed? Is this a single transaction resulting in in-kind when issued?
Heather,
To my simple way of seeing things, the issued gift certificates have no bearing on the fitness center to claim the cost in any way — unless the gift certificates are redeemed. It matters not how many gift certificates there are out there in whose hands, unless and until they are claimed for the services offered.
When redeemed, the gift cards allow a contribution of services, which are not tax-deductible, but the fitness center’s accountant may look into the possibility of claiming the cost as an advertising or other business expense.
With giving a gift card, the fitness center is donating a service, which is not tax-deductible.
We have contributors who purchase gift cards for the stated full retail value. For example, a Target gift card for $50.00. The gift card is then passed along by us to one of our participants. Since the donor has purchased the card for a very specific monetary value is this the same as a cash contribution? It seems that the only difference is that the contribution is in the form of an electronic payment versus a check or cash. Am I correct?
Jack,
I believe you are correct.
I have been observing the changing IRS rules for a number of years regarding gift cards. Over that time, from the IRS website, one could read about “proposed” rulings.
As I see the issue today, the proposed regulations appear to lump gifts made through gift cards in the same category as gifts of straight cash.
My guess it that it would be appropriate to acknowledge a gift made with a gift card in the same manner as an organization acknowledges gifts made by cash, check, credit card, or on-line cash transfer.
As far as I can tell, these regulations are still “proposed,” but this appears to be the only guidance there is currently, and I would go that way.
I work at a small church that does many local mission projects. Members often give me receipts for things they’ve donated – for example, groceries for our lunch program. In our accounting software I list it as an in-kind gift of $0.00, and in the comments section I type in the details of the gift including the total of the receipt(s). I keep the receipts in a file with my other donations documents. On their year-end giving statements, they can look at each individual gift in the list of all their donations and see what it was and how much it cost, although the total of their in-kind gifts remains $0.00. I do it this way because that’s how the administrator before me taught me to do it… As I have just mailed out the 2015 giving statements, several people have asked me whether their in-kind donations “count.” I am trying to understand: is there no tax benefit for them to make in-kind donations? Is there no way for them to claim these donations on their taxes? Am I wrong to document their gifts the way I do? Thanks for any clarification you can give.
Julie,
Your donors of In-Kind items must themselves determine what, if any, tax benefit is possible to them. That’s something they work out with their professional, or by consulting IRS regulations to see if what they gave In-Kind meets a minimum value requirement and other criteria for tax relief.
You do not issue In-Kind contribution declarations from the church, regardless the amounts spent from receipts given to you. Better the donors keep the receipts.
In the instances appropriate, you can send them letters citing the value, in dollars, which so much relieves the needy receivers of the food from having to come up with, i.e., the money value to them.
Since a church uniquely looks to its members for regular/weekly stewardship contributions, I suggest that you work to keep separate any respective In-kind donation. Make the latter “count,” but not to be actually counted, in what is necessarily their offerings as members of the congregation. You do not want to have a tilting of In-Kind donations resulting in less cash support. (Other non-profits are wise to total cash and In-Kind gifts to count as a supporter’s annual giving, but I think a church should account for In-Kind donations in a different manner for reasons as cited above.)
You can enter In-Kind donations in your software in any way suitable to your needs and understanding, doing so perhaps with suggestions from your annual, outside, auditor.
—Tax break possibilities for In-Kind donations must be explored by the donors.
— You simply refer to any such values in the way described in the article and from this reply.
— Gratefully compile the values and refer to them as separate support, keeping free and clear what you must strive for to achieve maximum cash offerings. Such In-Kind donations must be in addition, not to count in total.
The website you are looking at was designed as an in-kind donation. However, the owner of the design company paid his staff a considerable amount of money to do the work. Is he allowed to deduct the wages of his workers?
Linda,
No, he cannot.
Wages are what he pays to his employees for any and all work they do.
That he chooses to donate the work, has no connection to tax breaks for wages he must pay.
I volunteer with my sons PTO. Teachers gather gift cards every year to put in gift card baskets to be auctioned off to raise money for the schools one and done fundraiser. They do this on their own, and gather gift cards from donors that they contacted. No gift cards ever come through the PTO, so we have no idea what is donated or which cards are put in what baskets. This year we had a donor ask us for a receipt for a $50 gift card that they donated to one of the teachers so they could claim it on their taxes. Since we had no knowledge of this card, or the amount, and it wasn’t donated to the PTO, but to the teacher, should we have to write them a receipt? This card never came through our books. The money made from the gift card baskets was donated to the school, but we cannot confirm how much was made from that particular one. This is how the teachers choose to raise money. We do not accept the gift cards.
1) On the donation receipt side, I would give DONOR #1 of the gift card a receipt, especially for $50, for good donor relations. The only reason it didn’t come through the accounting is because it was not tracked. I think you need to set up a system to track this and you won’t have to take the donor’s word for it in the future. Perhaps give the teachers a charitable contribution receipt that they can give to the donors of the gift cards
2) You are giving the recipient of the basket something of value in return for a contribution. That Donor #2 need to know the value of the basket so that they can deduct the excess, if any, of the amount paid over the value. That’s the true charitable contribution side for the recipient of the basket. As far as the gift card being given to the teacher and not the school, I don’t think that’s the correct way to look at it because you need to look at the underlying intent as to how the donor intended the gift card to be used to fundraise for the school.
3) On the nonprofit accounting side, you need to treat the gift card as an in-kind contribution and the related expense of providing that as part of the basket will offset it for a net P&L impact of $0. I think the gift card would be treated like a gift certificate and here’s the rule for that from the AICPA Guide for Not for Profits.
From the AICPA NFP Guide:
As discussed in FASB ASC 958-605-25-20 , NFPs may also receive items, such as tickets, gift certificates, works of art, and merchandise, that are to be used for fund-raising purposes by transferring them to other resource providers (the ultimate resource provider or recipient) during fundraising events. Those gifts in kind can be linked to asset transfers from the original resource providers to the ultimate resource providers (recipients) because they are, in substance, part of the same transaction; those gifts in kind should be reported as contributions and measured at fair value when originally received by an NFP. The difference between the amount received for those items from the ultimate resource providers (recipients) and the fair value of the gifts in kind when originally contributed to the NFP should be recognized as adjustments to the original contributions when the items are transferred to the ultimate resource providers (recipients).
For those who need more help, go to http://www.stayexempt.org or look at IRS Pub 1771 for charitable contribution substantiation. It’s a well-written publication.
Our PTA puts on an auction each year and I was asked if food providers may get credit for an in-kind sponsorship if they sell us the food below cost?
How would I handle this? Any information would-be helpful as I’m new to all of this.
Thanks!
Theresa,
Ask the food providers to give to you the amount you will be saving.
That is, what is the difference between what you will actually pay them, and what is the amount you would have otherwise needed to pay “retail?”
Then, that amount should be the “paper credit” you give to them for public recognition.
How that amount fits into any one of the levels you will show in the program for the evening and in other methods of recognition, is up to you.
But, I suggest you treat the savings as cash–in exactly the way I describe in my article above. However, you do not give them anything in writing which suggests they gave cash–only the savings they made possible so you could make more net profit for the event to allow your PTA to do its good work.
Our non-profit is the happy recipient of free snow removal each year from a local landscaping company. Since this is a service rendered rather than a product given, is this a case where your statement, “Using the advice given in my article, in such instances you can give the donors of services a thank-you which, if they give its value to you, has you “understand” that they donated $ ___________ for services which they would otherwise require payment in the marketplace. Or even, if applicable, that their donation of services in the amount of $ ___________ allowed you to not spend that money so you have more funds to carryout your mission.” should be used in a thank you letter?
Mary,
Exactly so,
That is the way to go.
Let it snow, let it snow, let it snow,
That you need not pay for its removal is so very nice to know.
I just received a quote from a design firm asking that the terms of a contract state that “the cost of the Project is $3,000 – $2,000 to be paid in cash and a $1,000 donation receipt to be issued to the contractor.” This seems to contradict the information contained in this article. I don’t think I should approve this contract. Any opinions?
Bill,
Sounds to me like a good deal, one not to pass up if the project will benefit your organization, and to not turn down what appears to be a generous donation.
I suggest that you simply compose a note attachment to the contract using the same language as I have provided in the article—where you give appreciation for the In-Kind donation of services which they valued at $1,000 as money they saved you from spending so you have those funds available to pay the expenses of doing your organization’s good work.
What if, in this situation, the organization pays the contractor the full $3,000 he usually would charge for this work. Then the contractor makes a $1,000 cash donation and gets a receipt like any other cash donor? Does that make it all cleaner (and closer to what the contractor was looking for, sounds like) or does that look fishy to the IRS?
I have heard of places doing this for a venue rental that was donated- had the organization pay for the rental what is usually charged, and then the venue made a donation back to the organization.
Sara,
Both transactions are common, and they are surely legal. Nothing is fishy either way.
It’s what the donor chooses that counts—in this case that the donor wants to make a $1,000 contribution one way or the other to the non-profit organization from the project expense of $3,000:
1. Be paid $2,000 and contribute the other $1,000 as an In-Kind gift, or …
2. Be paid the $3,000 then, in turn, write a check to the organization for $1,000.
Either way, the non-profit benefits. Either way the donor gives the non-profit a $1,000 contribution legally.
However, the contractor/donor would look to its accountant for which of the two methods is more favorable internally to them:
— that the contractor would be more tax-liable to the IRS for $3,000 of income, rather than $2,000 …
— that since there is no tax relief to the donor for the $1,000 In-Kind services donation, perhaps it would be determined that the amount could be claimed as a business expense.
Thus, you see why in my article, that I stress that the non-profit only be concerned with giving “paper credit” and public recognition for In-Kind gifts, and that it naturally provide a written certification of date-received and amount of cash for those types of donations.
Whatever IRS-related benefit the donor can obtain, is something entirely up to them to determine internally and through their tax advisers.
Non-profits must take care to not certify what is not theirs to certify.
Great article! A member of our gala host committee donated her company’s software to our organization, valued at $3000. She assumed it would be equivalent to a usual gala sponsorship (and include tickets to the event). I said no, based on my understanding of the in-kind donation rules, but I know they were disappointed. What would be a good way to acknowledge these types of donations without putting them into the same category as cash sponsors?
Sarah,
Saying “no” to a benefactor’s request is just about the hardest thing to do, and something we almost never should do. Let’s see how you can either stick with what you told the donor, or make some sort of accommodation.
I do not know how the donation of the software was meant to be applied to your organization:
— for overall and general operations,
or to expediently handle the myriad details of the Gala.
(1) If the generous software donation was given in fact to benefit in total your organization’s operations, and if you had such an expense in your budget, then the company saved you from spending $3,000. (Even if the software program was not in your operating expense budget in the first place, the software donation allowed your organization to greatly improve its operations.)
(2) On the other hand, perhaps the donation of software was prompted by, and applied mainly to, the operations of the Gala. If so, and were you not planning to spend the money for such software, that nice donation was not part of the Gala expense budget, thus was not an underwriting donation which relieved you of an expense. If such an expense was in your Gala’s expense budget, then it was relieved by the donation, and the company certainly is a sponsor. They are recognized in that way, and they receive the applicable quantity of complimentary tickets.
Thus, when it comes to a special (annual) event Gala, sponsors can/should only count when what they donate directly and positively impacts the bottom line of the Gala—to achieve a significant net profit. While what the company gave to your organization is a major donation, it may be doing nothing to directly help what a Gala must be all about—the making of money by paying less via underwriting donations for what is needed.
That is how I see the way to respond to the company’s request from about every view I can picture.
To my way of thinking, there is no In-Kind Donation ruling which applies here. Reading my article again should reinforce how you only recognize such In-Kind donations. No IRS rules apply when you just issue internal and public “paper credit” in the amount you would have spent were you have paid “retail.”
In my opinion, you have far more of a donor relations issue than anything else.
If scenario (1) applies, then you could consider giving a reasonable number of tickets to donor of the software. What is reasonable, when you need profit and may have a few other comps to give? Four freebies is what I would do.
Sorry for the comprehensive reply, but I simply was not sure how the software donation fit, or did not fit, with the direct and explicit operation of the Gala. I had to cover both bases.
Very informative article and timely for me. I just designed a new logo for a non-profit as a favor to a friend. I am an artist/designer by profession, and had I been hired to do this I would have charged between $500 and $1500, depending on time and number of comps required. Although what I offer is usually considered a service, the end result is a tangible image that will be used in a number of ways for communication, public outreach, advertising, etc. So, is it tax deductible or not?
Phyllis,
Generous of you to donate your creative/artistic services.
Unfortunately, the IRS rules you cannot claim a tax deduction for donated professional services. Out-of-pocket expenses, perhaps and case by base.
Artistic/creative services used in the ways you describe for your good effort, could as well apply to fund-raising brochures, annual reports, donor recognition displays, etc.
I truly understand how you feel regarding how your work, being tangible, may help with mission furthering, fund-raising, etc. But, such an exemption, hard enough to measure, would be unfair to the other donors of professional services, such as painters, electricians, carpenters, and others whose professional services are donated In-Kind.
As I read and understand the IRS Publication 526, the section, “Contributions you cannot deduct,” there are no exceptions.
Thank you for writing this. I own a newspaper and donate a lot of space for community events and organizations. I was recently told my donation of $2,000 in space would not be considered the same as $1,500 cash contributors. They want me to donate my cost to be equal. What are your thoughts on this type of transaction/request?
Julie,
Just as my article states, any thinking and appreciative non-profit, receiving generous In-Kind donations such as yours, should/must give to you public credit for what such space would have cost them “retail,” should they have purchased the space.
Naturally, your In-Kind donation cannot be considered the same as cash, relative to IRS regulations, but any smart non-profit would recognize your In-Kind donation in the same way they would recognize a cash gift in that amount, i.e., citing your In-Kind donation value among gifts of cash in publications, such in Annual Report donor listings.
I do not understand how the #1,500 amount enters the picture here, if the space you donate would cost $2,000 to a paying advertiser.
If the organization to which you refer is nit-picking, bordering on being ungrateful, the organization’s officials have no business telling you what you should declare as the value you attach to the donated space. And certainly, they have no business whatever when it comes to themselves estimating the worth of your In-Kind gift.
Unless I am missing something, the organization does not know how to show respect and appreciation to its best supporters.
Have them read the article, especially the ending section, “Don’t Be Unkind to In-Kind.”
Tony, great article! What about for services like food prep by a chef
Marcelle,
Thank you.
The chef’s food prep time and expertise are not what the chef can declare for a tax break.
In the IRS Publication 526, it is made clear that no deductions are allowed for donated professional services.
it is my understanding that if someone discounts the rent to a nonprofit that is renting the premises, that in-kind gift is not a deductible donation for tax purposes because it is a contribution of less than an entire interest in that property. Because you still own the building, you have contributed a partial interest in the property and cannot take a deduction for the contribution.
Michael,
Your understanding seems to be the case with the IRS, but from some reading of related information, there may be options in favor of the owner of the property discounting some rent to favor a non-profit. See the following article:
http://budgeting.thenest.com/can-write-off-rental-charity-taxes-31961.html
As well, enter the key words regarding such a deal into a Google or Bing, or other search. There are a number of other explanations to be considered, such as the one I provided.
Being a source of non-profit fund-raising information, we are often reluctant to delve too deeply into what are complex legal matters, thus your need for an accountant of attorney skilled in non-profit law.
I was contracted to do work for a non-profit. I had a written contract that was amended verbally (increasing my hours). I was asked to work such event, and my supervisor was to develop a way for me to tally my hours (she never did so I jotted them down on-paper waiting for her to develop a form). In the end I worked a total of 205.50 hours of which they had budgeted only 165 so 40.5 wasn’t. What is their legal obligation to pay me, or can they write me a letter for a donation of those hours?
Sorry to say, no legally binding agreement, means no contractual responsibility to pay you.
It’s your word against hers.
However, if she admits to the agreement made to you, she needs a good reason why she is reneging.
If she confirms what you understood, would she do so in the company of someone of authority in the non-profit so her reasoning could be aired?
If others at the non-profit personally heard of the promise and would confirm your verbal agreement, then you could make an appeal to the board president or other top officials.
Unfortunately, the IRS will not allow you to declare any value for a tax-deduction based on services rendered—only for applicable out-of-pocket expenses.
Such a letter would do you no good at all.
Our finance department is requesting the inclusion of explicit language stating the gift-in-kind is not eligible for a tax deduction. Is this required? Is it prudent to be this explicit? If so, are there examples available?
Anthony,
If your finance department is telling you to tell your In-Kind donors that their gifts-in-kind are not tax-deductible, you would be giving false and misleading information.
Tax deductions for GIK are up to the donors to seek, or not, via the counsel they receive from those who help prepare their annual tax reports.
My article above relates to only how we publicly recognize such gifts, and in no way do we explicitly give values, and certainly we do not tell such donors that they cannot seek a tax deduction.
So how do you record GIK in your donor database? We have a company who donated $6,000 worth of printing for a fundraiser. We acknowledged this generosity very similarly to what you posted in the article above but have had discussions on whether it is appropriate to list $6,000 in-kind in the donor’s gift record OR should we list the value as $0.01 in Raiser’s Edge and identified the $6,000 printing in the reference field.
Laura Jo,
The article was written to fill what I knew to be a gap regarding how most non-profits acknowledged In-Kind donations. Thus, what I wrote is donor-centered, that is, to appropriately recognize such gifts for what they might have cost “retail.”
Apparently, that is what you nicely did. And yes, I think you should post that In-Kind value as a “real” donation in your database for that particular donor.
How the receiving non-profits account for such donations in their financials, is something to which I do not know the answer. Your head of finance and your outside auditor are the ones to consult to ensure that your logging in of In-Kind donations are according to accounting standards.
However, were you to spend the $6,000 in the first place for printing, and that expense was a line item in your budget, then it seems a rather simple exercise to, in turn, post the value of the In-Kind donation of printing so as to offset the expense.
I’ve had a bad experience with gifts of $.01 (or similar) for various reasons – calculating gift averages, LYBUNT SYBUNT work etc. I’m in favor of entering the value of the GIK.
If you enter a gift type or subtype of “GIK” in your database, you should easily be able to include or exclude the information as needed in various reports.
Our church is non-profit. It is a small church and doesn’t have a lot of cash on hand. As a result, many of the congregants pay for items that the church would otherwise pay, such as gas and repairs for the church can, food for feeding the youth each week, and repairs to the church. Instead of receiving reimbursement for these items, can the amount spent be counted toward tithes as long as receipts are provided to show what was spent?
Robyn,
If many members of the congregation pay for items which would otherwise require the Church to pay why is there mention of possible reimbursement? That exchange is of no benefit to the Church’s required expenses.
To my way of thinking, it would be far easier, and of direct benefit to the donors, if they made donations in amounts individually related to specific expenses as they came up.
For example, if a plumber will charge $256.30 to fix a water leak problem, then a Church member makes out a check in that amount, payable to the Church as a bona-fide contribution. The Church, in turn, cashes the check and pays the plumber. The Church member has given a tax-deductible donation.
Having a member of the congregation directly pay the plumber, has that Church member end up simply with a paid invoice which will do no good for tax-deduction purpose when they file with the IRS. All you can do is to public recognize the worth of the expense, much as I suggest in my article above.
I think the best, and perhaps only, In-Kind donations you should solicit and accept directly are products and services which are provided by vendors and other businesses; what they themselves sell, provide or manufacture.
But I see a possible problem regarding the blessing (so to speak) of many members of the congregation paying for expenses, no matter how they do it.
It’s possible that many of those donors could see their tithing/donating support as being fulfilled when they pay for a needed service. It’s possible you could have an expense of say, $200 paid for, but to have that sum considered by the donor as his or her partial or total offering support, which is otherwise made weekly.
I would be concerned that in the long term there may actually be an overall lessening of donations if project and service donors are distracted and directed away from making their regular cash offering.
The Church must make it abundantly (with gratitude) clear of the need to have such direct expense donations be in addition to what the respective member of the congregation would give to the Church.
Sounds like a “happy problem,” to have so many step up and help with those on-going and emergency needs, but please do review the process for the issues I have raised.
The last thing you want to hear from a Church member who has additional and meaningful cash-giving ability, is for him or her to say with finality, “But I already paid for this month’s gas bill.”
If a grocery store donates a $100 gift card so that we can purchase refreshments for a group our NFP is hosting, is that considered an “in kind” gift? Can the thank you letter state the value?
Thanks!
Jyl
Jyl,
Use the suggested acknowledgment from my article.
That way, you can accurately state that the $100 gift card “saved you from spending that amount.” You are giving public recognition of the value of the card, but not giving any official-sounding donation amount.
Just avoid what may look like the receipt of $100 in any form for IRS recognition.
The grocery store knows how to account for such donations, be they as business expense, or for tax-deduction purposes.
They know that the $100 retail purchase the card commands is higher than their actual cost of the products purchased in hat way.
That’s another good reason to simply state how grateful you are for not needing to spend $100 for what you required for the refreshments, thanks to the store’s generosity.
I have been tasked with providing in-kind forms to individuals who have donated items to be used as door prizes for an upcoming banquet. I thought in-kind forms were for services rendered only and not item or cash donations. What is correct?
Cathy,
It’s the other way around.
Services rendered are not allowed for tax-deduction purposes.
Therefore, there is no point in having a form for such donated services.
Using the advice given in my article, in such instances you can give the donors of services a thank-you which, if they give its value to you, has you “understand” that they donated $ ___________ for services which they would otherwise require payment in the marketplace. Or even, if applicable, that their donation of services in the amount of $ ___________ allowed you to not spend that money so you have more funds to carryout your mission.
When you receive cash, a simple acknowledgment citing amount, date and donor, are all you need.
But, when it comes to the donations of products, such forms provided by the receiving charity are commonplace.
Forms of that type are readily available from most non-profits. When we donate clothing and other items to such organizations as the Salvation Army, we are always given a form for the items donated to be possibly processed for a tax deduction.
You can see many such examples from which you can adapt by simply using a search engine asking for — In-Kind donation tax declaration forms — or some such similar language. You can also get hard copies from local charities such as the SA, Heart Association, Good Will Industries, etc.
Here is a link to one such form, and you will note that there is explicit instruction to the In-Kind donor that he or she themselves must provide to the IRS the value of the items they donated
http://www.tcc.edu/donors/documents/Gift-in-KindDonation.pdf
I work for a non-profit hospital that has agreed to be the presenting sponsor for a volunteer recognition dinner event for a non-profit organization in our community. Their org has asked me to give them an in-kind estimate for their records. The event will be held in our main auditorium, our food services staff will set up the room for 200 guests,complete with table coverings, disposable plates and flatware. We will provide a buffet dinner for 200 guests. I will also create the program and our Forms department will print 200 color copies. Am I correct in assuming that I may consider the fee that we would charge other orgs to rent our auditorium, as well as the cost of the dinner, and the print cost (ink/paper) of the program in my inkind estimate? And, that any labor involved by any staff, i.e., my work to create the program, the kitchen staff setting up the dining area and both the kitchen staff and housekeeping staff cleaning up at the end of the event, is not to be included?
Elizabeth,
Coming from your non-profit hospital, as the In-Kind donor, the receiving non-profit should be given a total In-Kind value of all the tangible items you provide in an amount you can determine for their collective “Fair Market Value.”
The primary reason the benefiting non-profit wants that In-Kind donation amount is so they can give your hospital appropriate and deserving public credit.
How they handle the value on their own books is to be according to standard accounting regulations and guidelines, their own finance department, and their outside auditor. You have no place in that process, other than give a defensible accounting of FMV for what you gave them.
Since what you are giving them has no IRS regulation implications directly applicable to them, their only duty is to, on the other hand, apprise any paying guests of the value of gifts and services they receive—which must be deducted from any patron fee they contributed,
Since the event is a volunteer appreciation event, there may not any such payments/donations of admission/attendance money. If any do pay, and the rule above would apply, it does so even if what the patrons receive is donated by your hospital. Fair Market Value prevails, nonetheless.
As far as labor costs are conquered which you will incur, if such work is conducted during normal working hours and is done on occasion, it is your choice to add labor cost estimates or not to the In-Kind total you will give to the charity.
However, such charges for professional services are not allowed for tax declaration by individuals, and though yours is a non-profit and your gift is not applicable in that way, it could still be a good idea to not add up those program creation, staff setting up, and staff cleaning up charges you might be able to calculate. That is, unless such donated events are common enough that those services are billed in the case of paying organizations.
I have just started a small 501c3 and have been given a motorcycle to raffle off to raise money at our next event.The Kelly Blue Book for the motorcycle if $3,105.00 but if I read your artical correctly a certified appraisal will have to be done to allow me to give them a donation receipt for that amount.I that correct? Also in the past before our 501c3 status we would give our cash sponsors two event t-shirts as appreciation for there donation.Going forward should we put the cost of these on the donation receipt as goods recived?
Darren,
My usual, but necessary, statement is that I am not an attorney, nor a person skilled in the workings of non-profit law. However, I do know of the source material, and where it is to be found, to answer such queries as yours.
You do not give the donor of the motorcycle a certified/official statement of value regarding the tax credit they may receive.
You can assist as much as possible in that endeavor, but it is still up to the donor of the motorcycle, in the end, to declare the permissible tax deductible amount on his or her tax return.
You can help if the gross proceeds from the raffle of the motorcycle apply, or if the Fair Market Value is what should be declared, the latter as determined from accredited sources.
Which figure the donor can use, is explained in the following section of the IRS Publication 526, as you scroll down to the rulings regarding:
Cars, Boats, Airplanes
http://www.irs.gov/pub/irs-pdf/p526.pdf
From my article, you can as well provide an acknowledgment, either by saying what “you understand the value to be
$ __________,” or how much your organization gained in net charitable proceeds from the raffle of the motor cycle—but you should not make any statement which can be construed as your organization certifying a specific donation amount. That is up to the donor.
As far as accounting for the value of complimentary items you may give to donors for their support, I think it is wise to always let donors know the Fair Market Value (FMV) of any product you will give or did give them for their cash donations. You do this in a way for them to know that they must consider deducting that FMV from what were otherwise declarable donations.
Looking again to IRS Publication 526, you could search for any possible minimum allowable FMV which would not require the donors to deduct the amount of the value received for what you provide as thank-you gifts.
To be safe, however, do cite the FMV of the t-shirts, with a further statement indicating that any tax-deductions would be made according to the applicable IRS regulations. That way you are well covered. Tax form preparers know these things.
I am looking at selling a commercial building. The certified appraised value of the building is $1,000,000.00. Can I sell it to a not-for profit for $500,000 and receive a in-kind giving letter for the other $500,000?
Thank you,
Cullen,
Your “Certified Appraisal” is what I understand to be IRS-acceptable in the final step to receive a tax-deduction, so that’s a good start.
But, from what I have come to know, your answer must be determined from other factors.
—- See IRS Publication 526.
http://www.irs.gov/publications/p526/ar02.html#en_US_2014_publink1000229745
Scroll to “Giving Property…”(that has decreased in value or that his increased in value.)
Giving Property That Has Decreased in Value
For example, the following is a direct quote from that section of the publication. There are other considerations you should examine, along with your CPA or attorney.
“If you contribute property with a fair market value that is less than your basis in it, your deduction is limited to its fair market value. You cannot claim a deduction for the difference between the property’s basis and its fair market value.
Your basis in property is generally what you paid for it. If you need more information about basis, see Publication 551, Basis of Assets. You may want to see Publication 551 if you contribute property that you:
Received as a gift or inheritance,
Used in a trade, business, or activity conducted for profit, or
Claimed a casualty loss deduction for.
Common examples of property that decreases in value include clothing, furniture, appliances, and cars.
Giving Property That Has Increased in Value
If you contribute property with a fair market value that is more than your basis in it, you may have to reduce the fair market value by the amount of appreciation (increase in value) when you figure your deduction.
Your basis in property is generally what you paid for it. If you need more information about basis, see Publication 551.
Different rules apply to figuring your deduction, depending on whether the property is:
— Ordinary income property, or
— Capital gain property.
(That is part of the regulations regarding gifting of property.)
We are going to lease office space and the landlord is willing to give us $1,000 a month discount over a 9 month period. When we acknowledge this gift, do we indicate the amount? Also, in booking the gift, do we book the full amount as a contribution? Any advice or links to relevant resources is much appreciated!
Brendan,
Use the example I gave in my article above, regarding how you do not “certify” the In-Kind donation, but you can cite the amount as it being money you have “saved” from your normal operating expenses, thus allowing those funds to be used to carry out your mission.
See the example above, and simply adapt it to your situation.
Your accountant and outside auditor, and the general accounting rules should be consulted.
But, as I understand such things, the full expense should be an entry in your operating budget. You would book that full amount. Then, you would enter the $1,000 In-Kind donation as a credit to the total expense.
You must declare such In-Kind donations, especially when they directly relive a fixed expense, such as the leasing rental discount.
Hi Tony,
I know it sounds simple but our nonprofit is having difficulty coming up with a good in-kind gift receipt for the donor and an internal tracking form. We want our bookkeeper to have all the information she needs but don’t know when and where we notate the value which we track on our P&Ls. Can you suggest where we could find good examples?
Thank you in advance for your assistance.
Ann
Ann,
Do consider the suggestion I provide in my article above–to not officially certify a value of a donated in-kind gift, but to state that you “understand” the value to be $_____.
Perhaps in many instances you may be able to relate that Fair Market Value as the worth of the in-kind gift which made it possible your organization to not need to expend its funds to pay for for that tangible asset.
As far as how such in-kind donations are accounted for on your books, that is something your financial folks should know, and your annual outside auditor would tell you what is standard and legal.
There is plenty of good information available on the Internet by simply using a search engine to ask for:
How do nonprofits book in-kind donations?
Here is but one good link I found via Bing:
http://www.wikihow.com/Account-for-Donated-Assets
I am hosting a big all day festival where we are showing a documentary film at the end of the day. All proceeds from the day will be donated to 2 non-profit organizations. I reached out and secured 360 single serve bags of in-kind popcorn from a reputable company whom I have thanked profusely, am displaying their logo, etc. I now have committee members that want to sell the bags of popcorn for a dollar a bag at the movie, which in turn, the $360 will be given to the non-profits we are raising money for. Is this allowed? Can our in-kind donation be sold and then that money be given away? My intent was always just to hand the popcorn out. Please advise.
Pam,
The only issues I see here, are whether or not to give the popcorn away, in terms of festival attendee relations, or if the sale of the popcorn has a negative effect on the festival.
Will it make a difference either way to the attendees?
Does charging for the popcorn (no matter the good use of the revenue) in any way dull the atmosphere you are striving to make for the festival?
If not, then sell away. It would certainly be legal.
Only one thing, though, which I think to be important:
If you told the donor of the popcorn–when you asked for the donation–that you were going to give their product away, then you must be sure to clear the idea with the donor that you now want to sell the popcorn to provide even more support to the recipient charities.
Just be sure as well to let the popcorn donor know that your selling of their product will in no way blur to the public the fact that the popcorn was fully donated.
I work for a non profit and my boss buys food for the board meetings, coffee for the coffee pot, snacks for parties (both donor and staff), etc. and then provides me with copies of the receipts. How can I recognize these contributions in accordance with the IRS rulings?
Nick,
You recognize those In-Kind donations in the way I suggest in my article posted above: saying thanks for what you “understand” your boss paid for the items, which is money you did not need to spend for those meeting and other event refreshments.
You cannot/should not certify anything “official,” even from the receipts.
Your boss is obliged to consider whether or not to declare to the IRS for a tax break what was spent for those refreshments.
His/her tax preparer may counsel that the amount is not worthwhile to submit, but perhaps even more telling, it could could be that the expenditure was not at all essential in the conducting of the organization’s business.
Essential, perhaps to the participants/party-goers, but maybe frivolous to the IRS.
The boss is thoughtful and generous, but to me, what she/he is doing, is simply a nice service to those who are given a treat with the refreshments.
Are you sure the boss, after this, would rather be reimbursed by the organization? That way, you can use those receipts.
My church is considering employing someone to do some work around the church. He would like to use his labor costs as a charitable donation instead of receiving actual payment. Is this considered a charitable donation?
Gail,
As I understand it, that person would be donating her/his services to the church.
It is an In-Kind donation to the church, but the person cannot declare the gift of services to the IRS for a tax benefit.
Of course, the church could recognize the gift of services as an In-Kind donation, the way I describe in my article posted above.
The person could be paid by the church as a regular employee, then in turn she/he could write a check to the church in that amount. That would be a charitable donation.
However, the person would then need to declare the payments for her/his services as income and would necessariy pay the appropriate rate as income tax.
We have a few gift in kind donors for our upcoming walk. What kind of acknowledgement (logo on site, brochures, etc.) should we provide for these contributors? Thanks in advance for your help.
Narjah,
Always give public visibility for your donors in as many instances as you can.
With but a “few” In-Kind donations, you probably can list all, even if the In-Kind donations are low value.
Use your good judgment when it comes to how many ways you recognize those contributors, and to what size logo or donor name you provide.
Try to be thoughtful, but do not go out of proportion in recognition to the values of the In-Kind donations.
And, especially be sure that such recognition of In-Kind donations do not overshadow gifts of cash.
Thank you so much for your reply Tony. I really appreciate it!
Thank you for such a good article.
We have a small non-profit community theatre group and in a draft document of board member expectations we have proposed this item: “Provide annual financial support through in-kind or cash donations in the amount of $500 per year. Each board member will submit, at the end of each year, an itemization of how they provided financial support in the amount of $500.00 or more, either in-kind or as a cash donation, over and above their basic responsibilities of being a board member.”
Can we count in-kind donations by board members, such as putting the program together (that is handed out to each attendee) for each production? If so, can we use an hourly rate to cost out that service? Or, does in-kind make it more confusing and should we eliminate in-kind and just leave it as a cash donation? I know of other theatre companies who just have a cash amount as an expectation of support from board members.
Also, since we proposed this, the treasurer is asking that those kinds of board member in-kind donations be included in the operating budget. I do not agree with his thinking.
Thank you.
Wayne
Wayne,
I believe you should scrap the draft document in total.
I’ll give a link below to my article regarding board giving criteria. I know it to be the best way to go.
First, my reasons why your present draft document would not work well at all.
— What looks like a minimum-required donation of $500 will, if it works, result mostly in donations given at the level.
A few might be considerate and give more, but since you set the minimum required, then most will, if they do so, keep it at that $500 level. You lose out for those who could give more if they were asked for a higher donation. You get what you ask for.
— Combining any level with In-Kind donation credit will lead to nothing but confusion due to the oftentimes difficult, if not impossible task, to come up with a so-called market value of the In-Kind donation.
— You need cash to pay bills to carryout your Mission, and to fund your Vision. Having the board members freely choose from cash and In-Kind donations to make their respective quota, is risky, if not downright dangerous to your financial security.
— The last thing you want is to have board members give In-Kind services, and then claim an amount based on their professional fee, or what is the cost in the commercial marketplace.
The IRS does not allow that, so why should you?
— Ask only for cash when you want Annual Fund donations from your board.
— Develop In-Kind donation opportunities from projects, programs and services the theatre produces and “shop” around for likely underwriters of those items. This, in addition to what is given by anyone in cash as their Annual Fund support.
— The only way for sure that In-Kind donations must be entered into the annual operating budget, is when those donations directly relieve you of paying cash to a vendor/supplier.
Some In-Kind donations may not be classified in that way and are, in effect, extras you can use, but would not otherwise have budgeted for.
I see no value in carrying such non-budget-impact values on the books. Besides, as we know, the value of many In-Kind donations are vague, even impossible, to be able to cite a fair and reasonable market value.
All of the above is simply to honor your good attempt with the board giving document, but I urge that you do away with the idea and incorporate what I suggest in my article:
— Annual Fund Giving & “Getting” Guidelines For Your Organization’s Board Of Trustees
http://www.raise-funds.com/1998/annual-fund-giving-getting-guidelines-for-trustees/
We hold a charity art auction. We obtain artwork from professional artist and designers and as a way to thank them for donating, they are given a admission to the ticketed event – which normally would sale for $200 couple/$125 individual. The cost to us for each ticket is about $55. How do we recognize this donation on their receipt. Do we show that they received something in exchange for their gift (as we do with cash donations)? Then we run into the fact that we sent thank you/receipt when we get the art and then later they decide to not attend the event. How should we handle this?
THANKS for any help you can give.
Sarah,
Here is how I see the situation you described, and maybe you will agree that the process I am suggesting is simple and workable.
(1) When you initially received the artwork, and other In-Kind donations, you sent your letters of thanks. (I urge that you word your acknowledgments in the manner I described in my article.)
(2) Cash-paying Patrons are those individuals who expect to attend, and from what they pay for admission, it is easy to determine the allowable tax-deduction amount—which is the amount you print on the invitation, and which you later give them as well in your acknowledgment letter.
They are buying the cost of admission, which includes your expenses and an additional donation amount they can claim on their tax return.
(3) Giving the In-Kind donors free tickets is another, different, matter. The tickets are given as “comps,” as a thank-you for their In-Kind donations. No one need account for anything. You are giving the admissions away.
I do have some comments though, regarding your practice. However, depending upon the length of time you have been giving free tickets to those In-Kind donors, it may be hard to break your habit and the expectations of those In-Kind donors.
(a) I think it best to only acknowledge the In-Kind donations.
Giving them free tickets at the same time can only result in perhaps far too many getting expensive tickets, maybe not in keeping with the worth of the In-Kind gift they gave in the first place. And yes, just passing out tickets in that way would have some not showing up. This does have a cheapening effect of the value of the tickets, and even perhaps the event itself.
(b) The event is to make money.
You make less and less money with giving the tickets away.
If the In-Kind donors are giving their art and services to just get the free tickets, it may be time now to bite the bullet and stop the practice to find instead what I am certain are many donors out there who would support you no matter what. Just to list them in your evening’s program would be enough.
(c) Too many freebies can as well dishearten your volunteer committee which is trying to maximize the net proceeds.
And, those Patrons paying cash for their tickets, could begin to resent that others are getting free admissions for what they donate.
I am attempting to host a donation drive for an established non profit org. The non profit is in the beauty realm so I want to request donations from companies for goods, not money or services. I have the info coompiled that I want to include in the letter that I will send to these companies. Is there any advice that you can pass along as this is my time attempting this. Thanks!
First, do again review what I say in the In-Kind donations article above for at least the following reasons:
1. Be sure you do not imply or suggest anything along the lines of what they may or may not declare for tax benefit purposes the products they may donate. That is totally up to them.
2. Cite as best you can how their donations of products will save your organization money so you can use your working capital to carry out your mission.
3. Tell them of the ways you would publicly recognize their In-Kind donations via publications, such as your Annual Report, on your website, etc., all of the ways which would be efficient for you to implement, not costly to your expense budget, and as attractive to them as possible.
Thanks for the recommendation Tony. I have just secured a substantial in-kind donation and relationship. This advice came just at the right time. Cheers, Fazela
Every people like to advice to another and it is general phenomena and we appreciate this. But need based advice is essential for everyone. Thanks
Faruki
Hi Tony,
A few of the founding members of our new non-profit paid for start up costs (such as website development and marketing and printing fees associated with brochures). Rather than getting reimbursed for their expenses the board members would like to claim the expense on their taxes as In-Kind donations. They did not actually do the marketing or create the website themselves, but they paid those vendors out of pocket. I can’t find anything in any IRS publication that addresses this and an IRS customer service rep I spoke to on the phone didn’t know either!
Thanks for any help or info you can provide!
Anala
Anala,
I am happy to help as best I can. My article deals with suggestions regarding how to recognize and acknowledge In-Kind donations by the receiving non-profit. What, and if, the donors of those In-Kind gifts can declare or not declare to the IRS for tax benefits, can be found in the IRS Publication 526.
http://www.irs.gov/publications/p526/ar02.html#en_US_2013_publink1000229649
Here is a quote directly from that page:
Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. The amounts must be:
— Unreimbursed,
— Directly connected with the services,
— Expenses you had only because of the services you gave, and
— Not personal, living, or family expenses.
You begin with the non-profit receiver providing an acknowledgement letter to the In-Kind donor which has reasonable detail describing the In-Kind gift. Without certifying the value, as the article above points out, you can show appreciation in saying that the dollar value of their donation as you understand it, saved your organization from spending its charitable dollars to pay for it.
Then, the In-Kind donors have those acknowledgment letters from the non-profit, and together with the invoices for the In-Kind work, they are in position to work with their tax preparers to claim what meets the IRS regulations in terms of what is then fair market value (FMV).
Not being expert in non-profit law, or an attorney, the founding members must consult to verify the IRS regulations they must follow.
One final thought which may or my not apply:
Care should be taken to ensure that any donation of any kind was made when the now-new organization was actually accredited by the state and the IRS.
There is flexibility in some states, but usually one cannot make a claim for tax benefit if the non-profit had not yet been certified officially as a non-profit organization. Those dates when such gifts were ruled to be tax-deductible, and when they were actually made, could be important.
Tony,
A friend of mine is considering donating a playground to a local park. The park does not have a non-profit organization associated with it. He wants to donate a 100% turnkey solution and wants to pay the contractor directly to avoid an RFP process. He has gotten preliminary approval from the city however he is concerned his donation will be considered “in-Kind” vs. cash. If he pays the contractor directly how do you suppose this transaction will look like for taxes?
Thanks
Larry,
Though I am not an attorney, nor one skilled in non-profit law, I do have a few comments and opinions—meant to encourage you and your friend to seek exacting and accurate professional counsel.
— Paying the contractor directly, to avoid the RFP process, could suggest that the contractor is so favored that no other bids are desired. How does that fit with the city’s policies on such matters? I would think it certain that contracts of that type are required to be put out to bids. As well, look to unfavorable perception regarding the favored contractor over any other.
— If the city wants the playground, all involved should get a ruling that a donation to the city can be considered with the IRS for tax benefit. From what I understand, donations to a local government entity generally quality a donor for a tax-deduction on their federal tax return. Making a contribution to the city which works in that way would have the donor benefit, while the city turns around and uses those donated funds to pay the contractor.
—If your friend pays the contractor directly, then there cannot be any tax relief or benefit to your friend. It is therefore not a tax-deductible contribution to an accredited charity or a governmental entity which may enjoy that classification.
For a non-lawyer/IRS expert, that is how I see the situation you describe. But, far too much is at stake for you to rely only on only what I see from experience and from a common sense viewpoint.
Tony,
Thanks for the response. The contractor issue is simply that my friend is trying to get the project finished and in an economical manner. He just wants playground equipment at that location nothing more and without any red-tape. He suspects that if the city is involved the project will take forever and cost 3 times as much. This is in an economically disadvantaged area so this is about the only shot they have at getting anything. Regarding the contractor he shopped all the major playground equipment sellers and he simply feels this one is the best for the money nothing more. Why however would his paying the contractor not qualify for an “In-Kind” donation? At minimum he did buy the equipment and donated it? How would it be any different than donating any material object? Thanks in advance.
Larry,
Your friend’s intent is commendable, and you are being a good friend to help him fulfill his wish to do something good.
However, working around the property owner—the city—seems to me to invite great risk. I doubt that City Hall personnel, responsible for purchases and letting out contracts, and the City Planner, will sit idly by and let the donor and contractor do as they think best for the City.
Be that as it may, it appears to me that the most effective and tax-deduction route is not being considered—that of donating the funds to the City, which then uses the funds to pay the contractor.
Why is that?
Probably because then, considering usual governmental policy rules, at least three or so bids would need to be sought. That messes up the non-red tape way the donor sees the project going ahead.
The way I see it—and you must get a true legal ruling—is that your friend, paying directly to the contractor (even if allowed in this way), is going to have the contractor required to declare that money as earned income on the company books.
A commercial business of this type cannot be a pass-through for such “donated” funds.
If your friend bought the equipment and donated said equipment to the City, then that is indeed an In-Kind donation.
He simply cannot “donate” to a business.
That is how I see it, and those issues must be taken up with your friend’s CPA and attorney.
It probably would not hurt to talk over the issue with the City Attorney.
We are working on our Annual Report and the question of listing in-kind donors (specifically auction donors) in the Honor Roll of Donors by giving level has come up. Ordinarily we list auction donors on their own page in the publication and in-kind donors are listed separately as well, but some feel these donors should be listed with the cash donors. I would like to know what the correct way to handle this is and what others are doing in this regard.
Thank you,
Elaine
Elaine,
I have always believed that we should apply to our donor listings and so recognize the total amount given in any fashion by all donors in a given fiscal year.
Each year, our Annual Report’s Donor Recognition page listed all of the various dollar categories we felt were appropriate to the range of donations we received. Such a listing will naturally differ from one organization to another.
Our practice—especially in the Annual Report donor listings—was always to add together all tax-deductible contributions and the value of In-Kind gifts made by the same donor in a fiscal year to what the donor gave to the Annual Fund. That total was placed in the appropriate gift category/level.
The heading at the top of the donor listing made clear that the donors were being publicly recognized for their total support to our Orchestra for that given Fiscal Year, including Annual Fund donations, payments of capital and endowment pledges, sponsorship and underwriting payments, In-Kind donation amounts as best assessed by Fair Market Value, and the deductible portion of patron tickets they bought for special events. That way of combining all of the cash and other values in one contribution amount was received with appreciation by our donors. Many were pleasantly surprised.
For example: Annual Fund gift was $2,500. Tax-deductible portion of two patron tickets to the Gala totaled $150. Same donor paid $1,000 cash in this year toward a multiyear capital campaign pledge. For our Auction, they gave a flat screen TV market valued at $1000.
Thus, the total given in cash/paid in cash/In-Kind value for the fiscal year, was $4,650 and that fit nicely into our $2,500 to $4,999 category listing on the donor page.
Along the way I had a new Finance Manager who protested that we were giving credit to donors who “were not giving real money” in some of the applications. I convinced him that though a couple had a great time at our Gala, their patron ticket cost exceeded the expense of entertaining them, and that the net proceeds were indeed real money. And were to pay for the TV for the Auction to attract bids, we would have had to pay for it ourselves “retail.”
I always felt that extending ourselves to give simple paper credit when it makes a donor feel good, is a thoughtful thing to do, and our donors, always appreciated the effort and our thoughtfulness.
Thank you for your reply!
The other scenario we ran into last year was a guest at our auction wanted to see his name listed in our annual report because he said he sets aside a certain amount of money to spend at our auction (a generous amount) and he considers this money his donation for the year. (And since we exclude these purchases, his name did not appear in the report at all.) Some have argued that since he received items or services in return for his contribution, it can’t be included. Since our annual report is not audited and shouldn’t be used for tax purposes, it has come into question whether or not that is true.
I would be interested in your view on this.
Thanks!
Elaine
Elaine,
To me, yours is far more a donor relations issue than anything to do with accounting.
Telling a major purchaser of auction items that you cannot give him public credit for the full amount of what he paid for those products or services, can put at risk his future support.
The IRS will not allow him to claim that full (if any) amount for a tax deduction, so why should he expect to have you recognize his purchase in that way?
If you are forced to do it his way, then you open the door for others to follow suit. Even one such unreasonable and inappropriate listing is one too much.
For example: The fellow enjoyed a condo in the Bahamas for ten days—worth $500 per day for his bid of $5,000, and wants you to give him public (Annual Fund listing) credit in that amount.
That was his “donation,” that is true, but practically, morally, and ethically, he is wrong to expect such a listing because he was well compensated in the form of a tangible and valuable asset. He received genuine value and benefit for what should be an unfettered purchase, and not a charitable donation as we generally know it.
The IRS law is clear, and your particular purchaser of auction items must come to grips with, on the one hand, to have a totally different declaration value for taxes (in the case above, none), and on the other, a $5,000 value for which he asks that you give him public credit.
Donors who purchase items at a charity auction may claim a charitable contribution deduction for the excess of the purchase price paid for an item over its fair market value. The donor must be able to show, however, that he or she knew that the value of the item was less than the amount paid. if your donor pays more than the published value, the difference between the amount paid and the published value may constitute a charitable contribution deduction, and your listing in that amount. If less, no deduction, then no listing.
It can get messy.
Since he has had a history with you of making auction purchases annually, he would know the IRS ruling, to be sure. Thus, knowing the way the IRS sees such purchases, and what he wants from you in a counter fashion, suggests that you will face a serious decision which could put his future support at risk, or cause untold problems from other such purchasers of auction items seeking the same kind of unreasonable public credit.
He should be made to understand how those purchases work with the IRS, and that his receiving of a benefit should have his common sense, and sense of what is fair, show through and not expect a public listing of the type he is seeking.
A review of the following IRS webpage should be of interest to all:
http://www.irs.gov/Charities-%26-Non-Profits/Charitable-Organizations/Charity-Auctions
Hi Tony:
I want to include language in our annual report thanking our in-kind donors, which are many. I don’t want to thank them individually or by dollar amounts. Can you suggest an appropriate sentence or two to include?
Thanks
Pat
Pat,
Sorry, but somehow I missed your July 10 Blog posting. I just now saw it.
You could consider saying something in this way
“But for the generosity of our many donors of In-Kind products and services, we likely would have had to expend a considerable amount of money for what those donors gave as an In-Kind contributions. These are dollars actually saved which we are able to apply directly to support the programs and services we provide for the well-being of those whom we serve in our community.”
Something in that manner, which gives a true sense of value, when all too often, In-Kind donations are not regarded in the same breath as when we refer to cash. I have heard some receivers of In-Kind gifts dismissing them as “not being real money.” Of course they are not, but such In-Kind gifts do indeed have real value.
By the way, I can understand how it could be unworkable with so many In-Kind donors to list them, but you might want to consider paying special homage to those In-Kind donations which are at a very high level.
I have a scenario I can’t work through on my own. There is a community festival being organized by a company. They have permission to charge for vendor spaces (tables) at this event. They have offered us one for free as a charity and have asked for a tax receipt for the cost of the table. It is not a service, it is an exchange of a product that they offer, but the product is not physical.
Are we able to issue them a receipt and recognize them for their contribution?
Val,
I recommend you do as I suggest in my article above.
That’s where your wording does not give an official value, as the IRS and the company’s finance manager/auditor would not be abke to claim it in the first place.
The only way for a true value to be ascribed is for the company itself to know the actual costs expended. It’s totally up to them to come up with number and reconcile it with the IRS.
What you can say with your thanks, is that “you understand that the cost of the table to the public is $_____, and we thank you for your favoring us with your generous gift of making the table available for our use.”
You cite only what the cost would have been “retail,” and that you were the beneficiary while others are paying the charge.
Nothing more.
Figuring the actual cost to the company of a vendor table space and other accommodation, is certainly something you cannot agree to authorize, and certainly not for you to be able to calculate on your own.
I have an unusual request for an in-kind letter from one of my board members. We have our board meetings around the country and one of the board members submitted their travel receipts to us. They expect us to provide them with an in-kind letter with the value of total travel expense be stated on the in-kind letter. This is not a budgeted line item. Should we provide a letter with the total dollar amount?
Ray,
The receipts will only be of use when the donor works them directly on their own to the IRS via the tax form.
The receipts must cover only what can be directly applied to the board meeting—no extra expenses, for example, for staying longer in a hotel for other business.
And the amounts submitted must be “reasonable.” Reasonable is hard to justify if, for example, the expenses were out of the norm for normal per diem relating to meals, mileage, etc. You simply cannot be responsible for what the donor declares and reports.
Those, and other factors, make it impossible for you to flatly declare in a letter any amount which suggests that amount as being official, and eligible to submit as tax-deductions.
Even so, your letter with such a certified In-Kind donation, would not be considered by a knowledgeable tax preparer and the IRS.
That is what you must tell anyone asking for such documentation. You should only say thank you in an overall way for spending their own money on the organization’s behalf. It is up to such donors to exactly identify applicable and legal expenses for declaration.
For “paper credit” to recognize such donations in your Annual Report and for other crediting of donations, try to obtain a fair and reasonable number and use it only for unofficial, public, recognition.
You and your board members will learn a good deal about such travel expenses incurred as a non-profit volunteer by reading the following IRS Publication 526 section.
http://www.irs.gov/publications/p526/ar02.html#en_US_2013_publink1000229682
Hello Tony,
I learned so much from your article. And thank you taking the time to answer so many reader questions. Scrolling through them was like a quiz. I would read the question and then try to guess your answer. Analyzing the variety of situations gave me more confidence that I understand acknowledging in-kind donations.
Too bad the time and expertise you donated to us readers isn’t tax-deductible!! 🙂
Greetings Dennis,
We appreciate your comments and support.
Each time I do take a crack at replying to the questions posed, I am somewhat like Hamlet: Just like him, it’s like “traveling into an “undiscover’d country.”
That’s how it is sometimes with IRS regulations. Hence, the caveats about not being an attorney.
Both the receivers and donors of such In-Kind donations must themselves keep up with the ever-changing rules.
It is rather surprising how many readers’ questions are In-Kind-gift-prompted in the first place, and then to see the wide range of situations in which donors and recipients are involved.
No matter what form they do take, In-Kind gifts are usually focused to the IRS regulation not allowing tax credit for services rendered.
Getting an accredited appraisal of value for the donation of an article of art is one thing, but setting a value on one’s own time and professional skill, would be an exercise in futility.
Your thoughtful reference to my own (and my colleagues’) “contributions” via our free website, is good example of just how impossible such a value would be to come up with and verify.
It’s reward enough to know that in some way we are helpful to your fund-raising needs.
Tony,If a Person has a Trailer hitch built on to his private vehicle and then uses it to Trailer the property of a non-Profit organization,is this an IN Kind donation to be written off?
also,he pay’s for the hitch out of his own pocket.
The IRS Publication 526 will help you and your tax preparer regarding what, if any, tax benefit you may obtain.
If the trailer hitch is used by you for personal and other use, and for the use and the charity’s benefit, unless there are operating expenses incurred, I do not see a tax break.
If you built or paid for the hitch which is used exclusively for the benefit if the non-profit, then you may have some deduction based on the fair market value of the hitch. That is something only your tax adviser can determine from knowledge of the IRS rules.
For your own generous donation of time and effort, you cannot obtain a tax break for your services.
Check out the link’s categories.
http://www.irs.gov/publications/p526/index.html
Is it inappropriate to pay a commission to those who solicit sponsorship on our behalf for in-kind sponsorship?
MT
Marsha,
The several national associations of non-profits, and “accredited” professionals themselves, overwhelmingly regard such contingent-pay arrangements as being unethical.
While I do share in that assertion, I think that such deals are more often made innocently enough, but without much thought as to the consequences.
If a really large non-profit had a sponsorship opportunity which would result in significant corporate upport, leading both parties to more of a quid-pro-quo arrangement, then I do believe a commission-paid “broker” of sorts would fit in well.
Even with a good deal of the money given in this way, the corporation would still have much of their money given in a philanthropic manner. But with so much publicity, entertaining and good will which the non-profit can generate and deliver, a broker, such as an advertising/PR firm or individual, could be engaged for commission pay to seek a sponsorship from their clients and other prospects.
However, by far, most non-profit sponsorship arrangements are mostly, if not all, philanthropically driven. Here, an outside paid solicitor is just that, and the risk is that potential donors would not want to see their money going to such an entity.
And your situation appears to be even more tricky. That is, paying cash for someone to solicit In-Kind donations. It seems to me that you would be dipping into your regular operating base of donations to pay the solicitor for In-Kind donations which may in many cases be difficult to assess for their actual worth to you relative to the pay out to the solicitor.
The ultimate summation: Some say such deals are unethical. I say they are unworkable and more often than not, the non-profit loses in the end.
Perhaps a reading of my article on this topic would help:
— Sponsorships And Underwriting Campaigns: Would You Please Fund Our ___________?
http://www.raise-funds.com/1999/sponsorships-and-underwriting-campaigns-would-you-please-fund-our/
As background, I am a graphic designer on long-term disability status from my former employer. Though I can still design, my former employer maintains that my work is no longer at a level he can use. As part of my LTD guidelines, I cannot make any income, so I have begun to donate graphic design projects to various non-profit organizations—both because I believe in them AND I want to remain as productive as I can, for as long as I can. I understand that “time” and “services” are not IRS deductible, but the fact that I am providing a tangible product (e.g., a letterhead, a DVD label and jacket, a large promotional banner, a prayer card, etc.) to me suggests more than simply a donation of the time spent to create those things. I have conscientiously filed Form 8283 for the past several years, listing my product donations and their FMV. Are these items deductible or not?
Jim,
Scroll down to read a number of Blog comments, some of which may apply to your situation. See the one from Avis and click onto the IRS Publication 526 link.
There, you will confirm that you cannot deduct for your time or expertise—but you may have a very good chance to get credit for expenses you incur.
Look for the “Contributions which you can deduct” link.
Tony, thanks for your quick reply. Per your advice, I read the IRS Publication 526 link and noticed a line (pasted below; capped for emphasis) that describes perfectly what I am doing. It appears in the third paragraph below the subhead, “Deductions Over $500 But Not Over $5,000,” and reads:
“If you claim a deduction over $500 but not over $5,000 for a noncash charitable contribution, you must have the acknowledgment and written records described under Deductions of At Least $250 But Not More Than $500 . Your records must also include:
“How you got the property, for example, by purchase, gift, bequest, inheritance, or exchange,
“The approximate date you got the property or, if CREATED, PRODUCED, or MANUFACTURED BY or for YOU, the approximate date the property was substantially completed. . .”
What I would like to deduct is CREATED PROPERTY MANUFACTURED BY ME on my computer. Even cash donations take TIME to earn, but it’s the GIFT (cash), not the time spent to earn it, that is the deduction. Similarly, a brochure, logo, poster, banner, etc. (non-cash), not the time spent to create them, comprises the deductions. Time spent donating blood or traveling to a conference is one thing, but producing a tangible product that can be seen and handled, is something entirely different—that much seems obvious.
At any rate, it now appears to me that the IRS, which by recent and damning revelations of incongruous behavior and practices, quite obviously disdains charitable giving of ANY kind to conservative—especially Christian—organizations, evidently makes NO distinction whatsoever between a donated PRODUCT and the TIME it took to create it. ALL aspects of graphic materials have been reduced to “time and services.” Is that how you read Publication 526, Tony?
Thanks again for your valuable comments.
Jim: It is important for me to try to stay away as best I can from interpreting IRS rules, this time relative to creating a product. Repeating that I am just an old non-profit fund-raising practitioner, and not one skilled in non-profit IRS laws, I stick to what my article is solely devoted to: that being how non-profits can publicly (not IRE-legally) recognize In-Kind donations.
When I was consulting, I performed a good number of pro bono consulting engagements. I, too, created a product in the form of computer-generated meeting materials, solicitation kits, etc. But, my tax adviser could only declare for my benefit the out-of-pocket costs for the paper, binders, and other such material.
I cannot account for the IRS’ way of stating what they say about such declarations. That is something you must settle for sure with them and with your own tax preparer.
Try as I may, wanting to do more, there is a real risk of setting you in the wrong path if we settle on IRS non-profit law. Best to go where such legal matters can be aired and responded to.
Can you direct me to some sample policies that cover this concept of placing in-kind donations – valued at their FMV – on donor walls or in annual reports? Thank you.
Cyndi,
Read, maybe again, the section toward the end of the article above, titled: “Recognize What it Would Have Cost You “Retail.” And the last item regarding how a client non-profit poorly treated my personal In-Kind Gift.
Those examples will suggest that, if there are such policies to which you refer, those policies will range far and wide and case by case.
We made it simple at the Cleveland Orchestra during my twenty years there as D of D, as I was the one responsible for donor recognition overall, and for specific listings on walls, Annual Reports and weekly concert programs. (My attitude is reflected in the two sections of the article as cited in this note.)
Each year, our Annual Report’s Donor Recognition page listed all of the different dollar categories we felt were appropriate to the range of donations we received. Such a listing will naturally differ from one organization to another.
The heading of the listing made clear that the respective donors listed reflected their total cash support to our Orchestra for that given Fiscal Year, including Annual Fund, payments of capital and endowment pledges, sponsorships, underwriting, the deductible portion of Patron tickets they bought for special events, and the Fair Market Value of In-Kind donations. This way of combining all of the cash and in-kind values in one amount was received with appreciation by our donors.
There should be no problem in coming up with a FMV or a “what it would have cost us retail” general amount for any In-Kind donation, but as we continue to stress—we never cite those In-Kind values as “official.” That is up to the donor to declare with the help of the donor’s tax preparer. Even if you were not going to pay for it retail, you research, estimate, and evaluate the value for your listings in the same way.
Hello Tony,
I am trying to prepare an in-kind receipt for an individual who is donating a house to our church. The property is appraised at $22,000. I believe that I am to include the appraiser’s information but I am not sure what other information should be included in this letter. Please share any knowledge it would be helpful. Thanks in advance
Avis,
All I can do—dare to do—not being an attorney or otherwise an expert in IRS rulings, is say what I do in my article about recognizing publicly “what we understand is the value of …”
That exercise is to simply give as proper-as-possible credit for In-Kind donations. I call it “paper credit” for what that implies. Such acknowledgments may differ from donations of property of type to which you refer.
Do read the IRS treatment of donated property and work from that information which you can read from the following link:
http://www.irs.gov/publications/p526/ar02.html#en_US_2012_publink1000229703
While that material seems to deal only with how the donor can or will report the donations to a non-profit, that still leads me to suggest the method I detail in my article above. However, such a tangible property now on your books may require special accounting and reporting which your accountant, attorney or auditor can provide.
What about items donated specifically for the purpose of charity auction? Do those items need to be held by the organization for a period of time regardless of their value? If a donor makes non-cash contributions to an organization totaling more than $500, an 8283 must be filed to claim a deduction. If the donee disposes of said property within three years, an 8282 must be filed unless “the property the charitable organization received is consumed or distributed without consideration in fulfilling its charitable purpose or function.” What does “without consideration” mean?
KS,
I have been looking in vain to see where you picked up the quote regarding the use of an In-Kind donation in its proper IRS fulfillment.
I am just an old fund-raising practitioner, and I am careful to avoid pronouncements about the rules and regulations of the IRS which change considerable and often. My article above simply suggests to the receiving charity how it can give proper and appreciated “paper credit” to the donor of an In-Kind gift. Nothing more do I dare assert, as the declarations of value must be justified and proven to the IRS by the In-Kind donors.
However, It is new to me to get the impression of any such holding time the receiving charity must or must not observe when it comes to the use of the donated product or service. Some charity auction items never receive bids, and I suppose there would be concerns that a non-claimed TV, for example, may end up in the CEO”s home.
I see some reference to what is cited as appropriate use, in keeping with the mission, in the short pieces you can access as follows:
http://www.irs.gov/Charities-%26-Non-Profits/Charitable-Organizations/Charity-Auctions
http://www.ehow.com/info_8151274_auction-items-charity-event-deductible.html
Sorry I cannot be of help in the way you need. Your state’s Attorney General and the IRS, your accountant or attorney, all must be the providers of such counsel in the end.
Hello Tony,
I’m sorry if you have answered this somewhere else in this comment thread:
Our school booster association received a donation of a time-share vacation with a market value of $2,400. This vacation will be auctioned off at an event.
How does the booster association declare the donation? Is it simply an income line item? What is the required acknowledgement to the donee? I know that the “winner” of the auction on this item only gets a receipt for a donation if they pay more than $2,400 for the item.
Any assistance you can provide would be appreciated!
Amy,
What I can (and should) only do, is to suggest proper “paper credit” to In-Kind donors, as I have described in my article above.
When it comes to other related issues of the type you describe, it would be best for all concerned to read the rules and regulations in:
— IRS Publication 526.
Specifically,
Contributions you can and cannot deduct.
http://www.irs.gov/publications/p526/index.html
The answers are to be found there.
Hi Tony,
Many donors request a dollar amount to be in their gift-in-kind acknowlegement letter. Is it acceptable to write this? Your tax deductible donation of a garden bench which you value at $100.00 is appreciated.
Hello Deborah,
Unless the value is high, over $500, and you want to assist in helping a donor obtain a value certified by an accredited expert, you should not give any specific-sounding value to your In-Kind donors. Even with the example just cited, the donor needs to justify the amount and reconcile it with the IRS. You cannot do that.
You should not make a dollar amount reference that in any way is coming from your organization as official. It would do the donor no good anyway when they work with their tax preparer.
Read again my article above and from the example there work as best you can to acknowledge an amount, but best in the way I describe–“saving our organization what we might have spent retail.
Otherwise, you are in no position to give donors an amount amounting to any certainty. Even with an invoice, there could easily be ways to have the amount overrated. Worse, is when something was given and the donor only told you what the item was worth.
Remind the donos that there are many websites with examples of acceptable declaration value: See Salvation Army, for one. A search will turn up many more.
Hi Tony,
I was recently approached by a group who wanted to run a fundraiser for my 501c3 organization. Afterward, I was asked to reimburse them for their expense. I sent them a thank you letter, but they want an in kind donation acknowledgement. Is reimbursement for out of pocket expenses, the same as in kind? I didn’t think they were one and the same. Thank you.
Hope
Hope,
I am not clear on this. If you reimbursed them for their out-of-pocket expenses, meaning you paid a bill, then that has no part in any form of contribution. You paid for an expense they incurred. Or did you?
You did not say you paid for their expense in fact, but that you seem to only have sent a thank you letter.
Any declaration for tax benefit by the group is totally up to them, their accountants and the IRS. They may find that some of their expenses are deductible. They would find that any declaration for professional services donated would not be tax-deductible.
You were asked to reimburse them. But, did you actually pay them?
How do you show the in-kind gifts of the Financial Statements for the organization?
Nancy,
It’s an accounting exercise and it varies because the standards are broad. For example, an In-Kind gift coming in which you cannot refuse, and is something you did not ask for, or even want.
Then there are In-Kind donations which are solicited expressly to help offset an expense for an item an organization was going to buy in the first place.
Accountants and auditors would see them in different ways.
I think you can get some good guidance by reading what is found on the following sites:
http://ezinearticles.com/?Non-Profit-Organizations-and-In-Kind-Contributions—Accounting&id=4154508
http://www.ehow.com/how_8580754_account-giftsinkind.html
http://www.npaccounting.org/2010/02/22/in-kind-gifts/
http://www.wikihow.com/Account-for-Donated-Assets
Hi Tony – I had a vicar of a local church hire and pay for services to have lighting fixtures installed to the amount of $290. They gave me a receipt from the company and a copy of their check and are now asking for an In-Kind letter. Thoughts on how is should be worded? Thanks for the help…Doug K.
Doug: Happy to help. Seems you arranged the project. Did you do more than that in terms of professional services or money toward paying the company?
The Church paid the company, gave you the receipt and check copy. But why would that be turned over to you?
I see no In-Kind donation here, so please tell me where and how the Church sees it that way.
The company was paid for out of the Vicar own personal funds and not church funds…and that is why the Vicar wants an in kind donation letter.
Thanks
Doug
Doug: Just use language adapted from the example in my article above.
The Vicar cannot declare any tax-deduction for his payment of the invoice.
The credit, if any desired, would be only similar to how I suggest.
Next time, the Vicar should consider having the Church pay the invoice, then the Vicar makes a tax-deductible contribution to the Church in the same amount.
Legal and fully tax-deductible would be that donation to the Church to offset the payment of the expense.
HI! I'm trying to draft a thank-you/acknowledgemnt letter for in-kind gifts and I'm grateful for your sample above. In trying to explore other options, I also found this online
http://skydivingmuseum.org/LinkClick.aspx?fileticket=fek4DqU/AD0=
and wondered what you thought??? This seems much more explicit in terms of value, rules, etc. Do you think we should/should not do something similar? Our non-profit is a school and people are clamoring for "receipts" like this one for purchasing items like laptops and other important equipment for the classrooms. Does this museum fall into a different category than what you mentioned above or are they just misinformed about what they are supposed to send out?
Thanks for your help!
Shannon,
The sample letter from the Skydiving Museum is not a receipt in terms of explicit value stated for the in-kind donations they receive. They should not/cannot make such a declaration.
The language in their acknowledgment letter is simply taken from the IRS regulations. They are only stating in general terms what the donor “may” do regarding levels of in-kind donations’ reporting.
Frankly, I think they would be better off by simply providing the link to the IRS ruling. Using the IRS text, with no reference to where the got it, does seem to make it a statement of their own. But still, note it is just general guideline language.
Note as well their listing of the actual in-kind items received at the end of the letter. There are no values cited. There should not be. That is up to the donor and the donor’s tax advisor. They can only say thanks for saving us from paying $ _______ for those items which will be on display at the Museum.
Use my article and the IRS rulings on in-kind donations to better educate your donors to the fact that, no matter that some are “clamoring for receipts,” you can only acknowledge what they gave in-kind in terms of item description and quantity received.
As far as any reference to value is concerned, use my guide above as best and as often as you can to tell them that their in-kind donation was of $_______ value to your organization in terms that you did not need to spend that amount of money.
See IRS Publication 526
Scroll down to:
Noncash Contributions
http://www.irs.gov/publications/p526/ar02.html#en_US_2012_publink1000229839
Should 'gift cards' be recorded as In Kind donations?
Sue, Begin with examining the IRS webpage devoted to Gift Cards.
http://www.irs.gov/irb/2011-05_IRB/ar09.html
For several years the IRS has referred to the regulations as "proposed," and apparently that is still so. From reading their proposed guidelines, gift cards seem to be less than in-kind donations as they are construed as being more of cash donations.
Best to work with your accountant or attorney. The rules appeal confusing even as they are "proposed."
The proposed Regulations appear to lump gifts made through gift cards in the same category as gifts of straight cash. My guess it that it would be appropriate to acknowledge a gift made with a gift card in the same manner as the organization acknowledges gifts made by cash, check, credit card, or on-line cash transfer.
But, do click onto the link above and see what you can learn. And get advice straight from the IRS or from your financial advisors.
Still a bit confused – what is in-kind gift (if I provide services) to a non-profit, such as a church.
I was approached by a friend actively engaged with his church. They just bought a property and need to spruce it up / maintenance. They asked me about stump grinding cost. I was going to write-up an invoice and show the normal bill, then donate all my cost and ask for an in-kind donation.
Is this accurate and acceptable?
Terry,
In charitable contribution circles, an In-Kind contribution is a donation of goods or services, rather than cash, securities, or real estate/property.
Your generous donation to the church of your stump grinding services definitely is an In-Kind donation.
The receiving charity cannot give you an official statement of value from your invoice which you can then use to claim a tax deduction.
As my above article suggests, the charity most certainly should give you a letter of grateful acknowledgment, and from what you provided to them, simply state their appreciation for “saving them from spending $ _______ for ridding the property of stumps.”
They should use that value of what they would have paid in their publications to publicize and honor your donations of services. It’s what we call “paper credit,” meaning deserved recognition of the value for the public to see, but not for the IRS to accept as a claim for tax purposes.
You have nothing you can declare to the IRS for the time you spend grinding stumps. You donated a service.
What you could do, if your accountant agrees, is make an arrangement with the charity that you do provide a true invoice, which the charity then proceeds to pay the amount due to you—then you turn around and donate in cash that same amount which would then qualify for tax deduction purposes.
Such an exchange is legal.
You only need to know from your accountant if that procedure would be good for you, bearing in mind that, of course, you would need to pay tax on the income you received from the charity paying for your services. S
ometimes this works to advantage, some times it does not. My guess is it would be a stretch for you to benefit with a worthwhile tax deduction for you to follow the procedure just outlined.
For your interest regarding the ruling on such service donations, go to IRS Publication 526
http://www.irs.gov/publications/p526/ar02.html
See the third section, “Contributions You Cannot Deduct.”
Click onto the sub-item, “Value of Time or Services.”
As the IRS says there, “You cannot deduct the value of your time or services … “
Tony,
We are having a fundraising, benefit concert and we offer a sponsorship in the amount of $1,200. Well one company wants to give us product for half of the sponsorship amount, is that considered in-kind? and how would we account for the product.
Thank you for your assistance.
Marie, First, to my way of thinking, it would depend upon the "product" offered to sponsor half of the event, for me to give such credit. Only if the product is truly related to the event in the sense it saves you money from buying such a product in the first place.
If the product has a relevant and monetary benefit for you to accept to give half of the sponsorship, then indeed, it is an in-kind gift. You acknowledge it in exactly the way I suggest in my article above. Just public credit for what it would have cost you if …. if you had to pay for the product.
No official sounding value in terms of what they can declare for tax purposes shoud be given by your organization. That must be left only to them to reconcile with the IRS.
Tony,
What about a situation where the donors are giving materials for a sale? We have a re-use, re-cycle building materials store where our donors can give us appliances, model home furniture, building materials, etc. How can I acknowledge these so that the businesses can take advantage of any deduction possible? It's not as though we would go out and buy a dishwasher to sell in the store so they're not technically "saving" us money.
Perri,
Those donors of such in-kind items may not be “saving” your organization money (as when you budget an expense for a need which is provided by an in-kind donation), but your good organization is certainly helping those whom you serve to help them keep from spending their few and precious dollars for what you give to them—if you are giving them those items, or selling to the needy at a very low rate.
Or if you are selling items to the generall public and using the proceeds from sales to work your mission to serve.
No matter, the donor of in-kind items handles any possible reporting of such gifts for tax purposes in the ssme way.
To those donors of in-kind goods, you personalize each acknowledgement as best you can with what they gave to you with descriptions, quantity, and explain the “value” of the donation only in terms of the good it will do. You do not provide a dollar amount of what they said the cost was to them.
The only way the such donors can “take advantage of any deduction possible,” is through their tax advisor. All you should do is thank them heartily and give as an exact description of the in-kind donation as possible. And always, as best you can, let them know the good their generous and thoughtful donation does for whom you serve.
Hi Tony.
Quick question. I am bit confused. If I were to donate my time as an Omaha marketer for such tasks like copywriting, graphic design, etc. to a non-profit, may I take an in-kind donation based on retail value of my services for tax purposes?
Susan, Sorry to say … no.
That is made clear in IRS Publication 526, though you should check the rules and ask your accountant about any relief you could have for some direct expenses related to your donation of professional time—that with the acknowledgement of the non-profit.
Otherwise, you cannot declare your donated time for tax benefit purposes.
If a donor donates temporary housing to a staff member, would the use of this in-kind donation be reported as taxable income to the staff member? If so, what dollar value would be reported? Fair market rental value or what?
Steve: If the free rent is for the personal use of the staff member, with no direct connection to that person's job, then he or she is simply getting free housing. There is nothing to declare.
If the donation of the housing is in any way directly impacting on the mission workings of the organization, then the donor should get the proper "paper credit" if the housing was ordinarily a rental property.
That would allow some value in dollars to thank the donor for. If not rental property, then there would be no dollar value to assign with the thanks—just give thanks.
Hi Tony, I've been trying to find the IRS Publication that says organizations are not supposed to put the value of in-kind donations on their letters. I couldn't find that wording in IRS 526. In your article, you said "By law, non-profit organizations cannot provide a donor with the dollar value of an In-kind gift." Can you tell me where I can find that in IRS pubs? I need to be able to show my boss. Thanks, and great article!
Kerri,
I wanted to make a strong-as-possible admonition to non-profits from providing what could be construed as “official” valuation to an in-kind donor who might not know better, and would declare that value in a tax report at risk. The risk could be to the non-profit as well for erroneous reporting, even if inadventent.
Thus, any such declaration, other than the type I suggest in my article, cannot, by law, be used by the donor. Such exacting declarations, when they meet the IRS’s requirements, are up to the donor or the in-kind donation.
There are plenty of citations to that effect, and here are but a few.
Center For Non-Profits
Non-Cash Donations
http://www.njnonprofits.org/giftsubs.html
“The charity should not attempt to value the property; that is the donor’s responsibility."
NOLO
http://www.nolo.com/legal-encyclopedia/overpromising-tax-deductions-65348.html
How can one go about valuing anticipated in-kind work when calculating match for a grant? Yes, this is slightly off topic. Thanks.
Actually, you are right on target. The issue is In-Kind gifts, with a unique twist, to be sure: one I have not heard of previously.
So, thinking along with you, let’s say:
— Will the matching grant entity accept the value of In-Kind gifts in the first place? If they are going to dispense cash, I should think that it would only be related to actual cash you raise.
— However, if the potential grantor is willing to accept In-Kind donations to match its funds, is there a limit regarding percentage of such total evaluations, as companion to the cash and pledges most all campaigns and project funding receive?
— Next, and the hardest, is if the valuations of In-Kind donations are accepted, how with the potential grantor expect the dollar valuations to be calculated to justify their respective cash match outlay?
As you know, were a vendor/service provider/company to donate something of value, in-kind, the amount could be anything from the “retail” cost to wholesale, to manufacturing cost, to the value of out-of-stock items, liquidated goods, etc. Who is to know exactly, regarding any of those benchmarks, just what is the appropriate valuation?
Because of those vagaries, I am surprised that a grantor of matching funds would allow their real cash to be given in matching to what are usually rather amorphous valuations of the things organizations receive from In-Kind donors. If you are able to work this process, that is good—providing the issues addressed above are answered satisfactorily. Good luck.
If my nonprofit hosts one of those restuarant spirit nights where a percentage of the total profits brought in by our ministry are donated back to us, are we required to send a donation receipt to the restuarant or is this considered an in-kind donation?
Gale, with the usual caveat that I am not a tax specialist, nonetheless, I will give to you my suggestions.
This is an unusual type of fund-raiser, where the restaurant does indeed provide In-Kind facility use, personnel, security, food & drink, etc.
However, in the end, they will present a check to your organization as a cash donation.
Those funds are proceeds, usually a percentage, of the cost of meals paid for by patrons documented to be the ones you brought in as your "friends" in support of the event. They must present a form when they dine which will identify them for the restaurant to calculate the cost portion of their meals to be given to your organization.
I think it would be a good idea to ask the restaurant manager for the name, or names, of charities which have gone before you with such "Spirit Nights," and ask how they handled the financial accounting.
To my way of thinking,though, since you will be presented with an actual cash donation, it seems appropriate to acknowledge the same accordingly—with no "strings." That is, thank them for exact cash donation, but as well separately thank them for all of the true In-Kind donations they provided for the evening. It's this latter array of true In-Kind products and services you received which you should not attempt to acknowledge as an official value. OK to generalize the value, but never to make it sound official.
In this case, it matters not how the cash donation came about, it's the fact that they presented a check in support of your organization.
Now, internally at your organization, were you to have incurred expenses of your own connected to the event, it will be up to your officials regarding posting a gross, or net, receipt of the funds you received from the restaurant.
Anyhow, that's how I see it. But, do ask others who have been in on such events.
Hi Tony,
At one of our recent YP events, a photo booth rental was provided at a discount. The company who provided the rental set the value at $1,200, and the discounted rate (that we paid) was $250. Even though we paid the discounted rate, can we still provide an in-kind donation letter to the vendor? I've been searching all over the internet,and have not been able to find an answer.
Thank you so much,
Mandy
Mandy, Just use the net amount, the sum after what you paid, to what the company said was the "retail" cost—and there you have the amount you can say thank you for to the donor as an In-Kind donation.
How, and if, the company declares any claim to the IRS, is totally up to them. You do not provide what could be construed as an authorized donation value—as you would to a cash donor—but just a nice acknowledgment thanking them for saving you from spending another $950, which is money you need to spend on furthering your Mission.
Do read my article again (above) which gives you such an example.
We had a donor recently contribute a $500 airline ticket voucher which we will then use to pay for a flight of someone accompanying artifacts for our upcoming exhibit. Would this be recognized as an in-kind gift?
Carrie, Yes, the donor of the voucher made an In-Kind donation.
I suggest that you acknowledge and recognize the donation in the way described above in my article. Not as you would a cash donation, but thanks to the donor's generosity, that $500 In-Kind gift was as good as if you had spent that amount "retail."
You should credit the donor in that amount when you make any donor listing, such as in your annual report. Again, using the examples cited in the article.
Question. If a Fire Deptartment's personnel are offered the use of a gym by hotels in their response area to keep the personnel in shape for protecting the tax payers. Would this be legal or "in-kind"? If the latter, how should it be reported to make it ok?
DC,
It is legal, and it is definitely In-Kind.
If you are “the” Fire Department, you simply send a thank-you letter with good detail of the In-Kind donation, and if possible, you can even cite an amount of money the department “would have” spent, were it not for the generosity of the hotel or hotels. Not an official declaration of a monetary-type donation, mind you, but just saying thanks for what it would have cost you otherwise. Read again the example in my article above.
If you are “the” hotel,” you cannot declare a tax-deduction for the donation of the service you gave to the fire department. However, do check with your accountant or tax advisor for any possible business expense/tax benefit possible for such things as clean-up, security, extra utilities, or any other special “out-of-pocket” expense which the IRS may (or may not) allow. The fire department can only say thank you, and recognize your donation publicly with a declaration of the amount they did not need to spend, thanks to your donation. Any other possible tax break, must be determined according to the IRS regulations as set forth in their publication:
http://www.irs.gov/publications/p526/index.html
Hello:) I am graduate student in Public Policy at Mills in Oakland. The Laurel District Association (LDA) is a 501(c)(3) property-based Business Improvement District (PBID) and I am hoping that they can receive in-kinded items like any other non-profit would. I have worked for several non-profits where I built incentive budgets from in-kind donations that I received. I am working on a community event proposal and I would make sure that this district qualifies can receive in-kind donations and can offer business that donate a thank you letter with tax ID listed (for tax deduction purposes). Also, do you know what the cap is on gifting? thanks
Monique,
You can get all you need by reading and heeding the rules in the IRS Publication 526 regarding the section devoted to non-cash gifts.
My article relates to the "proper" recognition a non-profit can give to an in-kind donor.
The publication will tell you all that you need to know from the standpoint of what the donors can claim with the IRS.
The non-profit receivers of in-kind donations should only acknowledge what they were gifted, and they should avoid any references to caps or other exacting IRS regulations. Such declarations are up to the donors to determine with their tax advisors.
IRS
http://www.irs.gov/publications/p526/index.html
Recently I donated some goods to our church for a fundraiser. I was assuming that the amount they raised, will be considered as cash donation to the church.
Was I wrong in my assumption?
Borie, Sorry, but it matters not to you for tax purposes what your church will earn from the donations of others for your donation of goods. There is no connection, once you turn over your goods. However, if whatever amount the church earns from your goods, is an amount they will credit internally as your offering support, then that is simply a mutually-arrived at agreement between you and the church. What remains is for your church to simply acknowledge your donation—in the way I describe in the article above—and for you, perhaps with counsel from your tax preparer, to determine what tax break you can get for your in-kind donation. The church cannot do that for you. You could get a good start by reading and heeding the rules in the IRS Publication 526 regarding the section devoted to non-cash gifts. My article relates to the "proper" recognition a non-profit can give to an in-kind donor. The publication will tell you all that you need to know. IRS http://www.irs.gov/publications/p526/index.html If your question was only related to credit between you and your church, then that is something you work out together. My tax references were only to try to cover all of the bases possible with your question. Reply
I can deduct from my taxes and 'in-kind' donation for something I purchased for the 501c3, yes? e.g. In leiu of them paying for specific marketing materials, etc. I purchased and 'gifted' to them. With a "retail receipt" I don't see any issue with getting a donation receipt from them for the item in full. Yes? No?
Julie, Best for you to read the rules in the IRS Publication 526 regarding the section devoted to non-cash gifts.
My article relates to the "proper" recognition a non-profit can give to an in-kind donor.
When it comes to IRS rules and regulations—which change often—I should not try to help with legal rulings. You should go to "the" source.
The publication will tell you all that you need to know.
IRS
http://www.irs.gov/publications/p526/index.html
Tony,
I know that the IRS does not allow someone to deduct the value of time or services. But are we allowed to recognize the donated time or service as a gift in kind? For example, a company recently gave us a significant discount on the labor involved in doing some repair work at our offices. Is it "legal" or accepted by general accounting standards to recognize this as income through a GIK?
Patty,
Yes, you are allowed to recognize and give public credit to that generous company which gave you that discount. As my article states, we are talking about recognition of the value donated, and not at all an official acknowledgment as a tax-deductible donation. They would know better anyway.
Actually, you should do so as the best of courtesy and appreciation gestures.
That amount of discount—the amount you would have paid “retail”—would be cited as such in your letter of appreciation.
And you can relate that same donation in other ways to recognize the company; at a board meeting, in your newsletter, even a sign in the newly repaired offices.
How, or if, you actually “account” for the savings in your financial budget statements, might depend if the initial full cost was included in your fiscal year expense budget in the first place. Thus the reduced cost, thanks to the donated labor time, could be reflected as such in your financial statement.
If not so budgeted, I do not see any effect on the bottom-line of your expense budget for having it entered. But your organization may have a special line-item method of listing in-kind donations. Such action would simply be a “paper credit” if the work was not budgeted in the first place.
Hi Tony,
Our non-profit received an event space (restaurant), wine, etc for a recent fundraising event at the restaurant. The restaurant has not requested a tax letter, and probably will not. Do we, as the non-profit, have a requirement to record the corresponding event expense and in-kind donation on our books, regardless of issuing a tax letter?
Janina: I think you should handle the event in much the same way as you would any other fund-raising event on your books: your organization’s “out-of-pocket” expenses deducted from your gross income, which gives you the net profit (proceeds). In-kind donation estimates, or even actual costs, are declared as well, to offset what in essence you would have paid if not for the donation.
We always did that for such fund-raisers as special line items in our overall budget.
As far as the restaurant’s in-kind donation is concerned, while they have not requested a tax letter, even if they did, you could not declare anything they could use directly with the IRS.
As my article above states, you cannot give information which may be construed as an “official” tax-deduction declaration, as you do when you receive cash.
Anyway, you cannot know anyway exactly how much the restaurant donated, covering all they did for you, including using their space and other such intangibles. That is up to them, their accountant, and the IRS.
What you should do is to gratefully acknowledge all they provided in some detail, then to declare how valuable their donation was as it made possible new and important funds to support your mission.
If there is any way you can roughly know an overall value, then you could simply state that you “understand” that the restaurant provided In-Kind donations of approximately $_______, which you greatly appreciate and which made possible a most successful fund-raising benefit.
They cannot, would not, use such an acknowledgment for tax purposes, but you have a thoughtful way to let them know to some degree that you recognize how much it cost them, and that it made a meaningful impact on fund-raising for your organization.
Nancy, My apology. Somehow, I missed your Comment. You are correct. Only the donation portion should be so recognized by your organization to the donor for tax purposes. The "fee," is just that—a charge for your services. The additional money is a donation.
Hi Tony.
We recently held an event where we charged guests a registration fee. However, some guests also gave us donation in addition to paying the fee. Some wrote one check that included both the donation and the registration fee. For tax letter purposes, can you advise how I ought to go about it? My guess is that only the donation portion of the contribution is recognized in the tax letter. Say for example, even if the check total is for $200 and $50 of that was for registration fee, we would send a tax letter for $150. Am I correct?
Thank you in advance for the help.
Nancy
Hello Rickeia,
Not being an Attorney, nor an expert in non-profit law, nonetheless, from what I do know, she cannot claim those costs as a tax-deduction with the IRS.
But, you can certainly provide “paper credit” and the type of recognition I suggest in my article. See again the suggested letter format which cites the “value” to you, but not to the In-Kind donor.
For that generous lady, and for your future reference, in the event you do not have the relevant IRS document, here is the link to see their Publication 526, which makes clear which are deductions and which are not, in the ….
— IRS Publication 526
http://www.irs.gov/publications/p526/index.html
“Contributions You Can Deduct”
“Contributions You Cannot Deduct”
Hi Tony,
We sell donated items we cannot use for our programs on eBay using a third party. We have a member who has set up as an eBay seller to sell her personal items and donates 75% of the sale to our non profit organization through Mission Fish. The 25% she retains is used for the fees she incurs for the transaction. She would like to claim these costs as an In-Kind donation. What are your thoughts?
Josh: To my way of thinking, it makes no difference to your organization when a donated product or service has an actual dollar value from a receipt or from any other way.
That amount, whether it has tax-deduction value or not to the donor, is entirely up to that donor when preparing her or his annual tax report. The "value" amount to you is of relative value, as you know somewhat the scope and size, generally, of what a donor spent in your interest and to support your cause.
Getting items through the Amazon registry, donated to your organization, as purchased by others, are absolutely gifts-in-kind, and you acknowledge them the same way I suggest in the article above, especially if they are items you would have purchased.
That's where the, "you helped us to save spending $______, declaration comes in.
If not in that category, where you indeed were going to incur that expense for the article given, the gift registry in-kind product, as you know its market value, can, if you wish, be referred to as something "which we understand has a market value of, and we appreciate that you spent that amount to give us the ____________"
That way you say thanks for the amount spent, but not as an official declaration of value for them to use for tax purposes. They cannot do so.
Hi Tony. I didn't read every comment above so I apologize if you've alrady addressed this. Do you have experience with Amazon Wish List? Would these be considered in-kind gifts, and how would we address these gifts with donors? It seems the difference in receiving something from a gift registry is that the actual dollar value is known because there is a receipt. What are your thoughts?
Tony,
Thank you very much for both your comments,They were very helpful and clarifying.
I will follow your suggestion.
Thanks
Nicola: Regarding your donors of In-Kind items and the way they are acknowledged—which we covered—there could be another way for donors to be responsible for providing certain items you want for an auction, and have them receive a tax deduction.
Usually, an organization solicits directly owners or suppliers of items for In-Kind donations for an auction.
However, there may a special case or two where you want a specific item to be featured in your auction’s presentations and you do not have a vendor able to make that In-Kind donation.
Say one such item is a flat screen TV.
Perhaps you have a board member or another advocate willing, instead of buying the item, then turning it over to you, have that person donate a cash tax-deductible amount to you for its cost, which you in turn spend that amount on the TV as a purchase by your organization.
This is legal, and the donor does not give an in-kind donation, but a tax-deductible cash gift directly to your organization for you to use in any way you wish.
The only things to consider is how the cash donation is entered into your books as a one-time donation, and how the expense of the TV you bought is accounted for in your expense ledger.
Nicola: Yes, they made it possible for you to obtain auction items.
They bought and paid for them. At that point, those items were their property.
However, they in turn, gave you the items. Thus, they are In-Kind donations.
Use the sample wording in my article above to simply let a donor know that the item she or he purchased, “which you understand has a market value of $________, in turn allowed the organization to receive donations from auction buyers.”
Something like that, but never anything which sounds as if it is an exacting declaration of value as received “from” your organization.
See some of the comments in this Blog and you will find other, auction-related, posts which may be of use.
I work for a non-profit and we just had a fundraiser and silent auction.
Some of my board members purchased items either for the silent auction or for the event and donated to the company. How do acknowledge them in the thank you letter?Is this considered a regular in-kind donation even if they spent money out of pocked and paid taxes as opposed to give something they already had or provide?
Thank you!
Susan,
One early point I want to make, to no doubt reinforce what you already know, is to take care to observe the rules of your state and the IRS regarding that a charitable donor cannot receive a tax-deduction for a donation made to an organization which is not yet accredited as a 501 (c) (3) organization of the type you have pending. You can obtain pledges in advance of such accreditation, but generally not contributions which are tax-deductible to the donors.
Before we get to helping with your question, and to best help the generous property owner, conversely, we must be careful to not imply or offer legal advice regarding what can or cannot be done regarding his In-Kind contribution. The best thing you can do is to give him the IRS links to the appropriate documents which he, in turn, can review with his tax preparer. So, with the caveat that I am not an attorney, nor giving legal advice, from what I have come to know, to answer your question, I say,
No, he cannot, according to the IRS, obtain a tax-deduction for the area donated to you, from which he ordinarily obtains rent.
Obtain from the Internet, IRS publication 526
http://www.irs.gov/publications/p526/index.html
See the section, "Partial Interest in Property," from which the quote copied as follows …
"Generally, you cannot deduct a charitable contribution of less than your entire interest in property."
Example 2.
"Mandy White owns a vacation home at the beach that she sometimes rents to others. For a fund-raising auction at her church, she donated the right to use the vacation home for 1 week. Mandy cannot claim a deduction because of the partial interest rule."
Again, this the stuff of what the donor must reconcile with his attorney, accountant, and tax preparer.
In any event, quoting again from IRS rules, you provide only a "Description (but not value) of non-cash (In-Kind) contributions." Never provide a value figure which may appear to be your official statement of the worth of the In-Kind donation.
— IRS “Charitable Contributions – Written Acknowledgments”
http://www.irs.gov/charities/charitable/article/0,,id=123207,00.html
But, you can, and should, publicly acknowledge the value of his donation to you, in ways as I have provided in the letter samples above in my article;
that your organization was saved from spending the $ __________ which would have been the rental charge, but for the generosity of Mr. ___________." Something like that will do nicely.
We are a non-profit (501(c)3 pending) that rescues abused and neglected horses. We rely on the generosity of property owners who allow us to use their horse facilities to house the horses we take in. If a property owner has leased out the barn and pastures in the past but is now allowing us to use the property at no charge to rehabilitate our horses,, is it possible for him to treat it as an in kind donation and take what rent he normal would get as a tax deduction?
You're awesome…thank you for the suggestion.
It's best for your accountant and auditor to rule on how you reflect the cost savings in your books. If, at the start, the expense was a line item, and you needed to raise the funds through cash to pay those expenses, then a subsequent In-Kind donation relieved that obligation. Thus, the expense was met, negating that deficit, and you could simply cite that in the expense budget's line item listing for that expense.
As for thanking the lady, use the sample notes in my article and adjust to your situation, letting the donor know how much you saved by her generosity, and that those "saved" funds are now at work to directly carryout your mission—money you would not have, but for her.
Thank you for your response and provided resources for clarification.
As for our volunteer, her in-kind donation indeed relieved our expense budget tremendously of the amount we would have paid for the two youth. Having stated that, do you suggest a different approach to acknowledging or recording the transactions in our books? Much Appreciation.
Sammie: You acknowledge just in the ways you see in the examples in my article above.
Any tax break, and I see none from here, is something she must take up with her tax preparer. You should not provide anything which resembles a gift of cash, just that she generously spent the money for your good cause which allowed deserving youths to benefit on behalf of your organization.
She, and you, may benefit from reviewing the IRS Publication 526. Scroll down to the section, “Contributions You Cannot Deduct.” (Contributions to Individuals.)
http://www.irs.gov/publications/p526/index.html
How you want to record such a transaction internally in your books, is up to your accountant and auditor. It would only be a “paper” issue anyway, unless the generous lady’s In-Kind donation exactly relieved your expense budget of an amount you would have ordinarily paid for. Your accountant can determine how such things are recorded.
Our 501c3 organization administers an educational travel program. During our travel, a volunteer sponsored two youth’s travel expenses (hotel, airfare, excursions, & meals) using her own personal credit card and submitted us with an “In-Kind” Expense report along with the receipts.
(1) How do we acknowledge her in-kind donation?
(2a) Can we record the in-kind donation in QuickBooks to show on the donor report? (2b) If so, which chart of account should we use?
Any assistance would be greatly appreciated.
Michelle: Yes, it's up there, in the section, "Sample Acknowledment For An In-Kind Gift."
See the second example for the statement regarding the In-Kind gift which allows that much money in real terms to be spent on the mission.
Look above too, to my reply to Eron on March 8, and my reply of March 9. It's the same type of situation you described, that being you paid the company a portion, and the balance was donated as an In-Kind gift. Treat both transactions as I suggested, if you wish.
I do some accounting and donor accounting for a 501c3 that recently had an event video made. The company is charging us part of the cost and donating about $3000 of the cost. From reading your article, it seems I should state in the acknowledgement letter "Thank you for donating your video services…,we would likely have had to expend approx. another 3000$ for what you gave us as an in-kind contribution. I did not see any example addressed in your article. Thank you.
Sue: I think it to be helpful if only you suggest that an In-Kind (non-cash) donor refer to the appropriate IRS regulations for such a donation. That suggestion could follow your initial thank you statement with a description of what exactly was donated, and how the item, :which you understand has a commercial value of $ _________, will be used at your event to attract the highest possible bids in support of the work your organization does.”
Nothing more.
It’s tough enough for a non-profit to handle its own IRS reporting obligations, but it could be misleading, and even in error, to send any IRS official reporting form or document which you believe the donor must/could file. That is up to them.
And, if they do not have prior experience with how they internally handle In-Kind donations, they certainly have accountants and tax advisors who know what to do—presumably the more common reporting they must/can do with IRS Form 8283, something to which you may refer as the document you “understand” is one they may check out for its possible use.
But, I suggest that you do not yourself provide any such form. It’s best for them to know what to do according to their own resources, the possible intricacies of the donation, and to meet IRS expectations and regulations.
Alumni Association. We are a nonprofit 501(c)3 entity. In June we are having a fundraiser event. For our silent and live auctions, we have received a few hotel resort gift packages as well as some bed and breakfast packages. My question is: Do I send a Gift in Kind form to these contributors? I have had conflicting answers from various departments. Please advise.
Fred: More than what often sounds like an offhand introduction to a number of replies of mine you see above, the “I am not an attorney, nor am I giving legal advice,” assertion is really not necessary since all of the comments to my above article have been from the point-of-view of what and how a receiving non-profit does when given in-kind donations. They never make, nor should they make, exacting evaluations of such gifts of services, products, or property.
But, your Comment comes from “across the table” regarding the donor of in-kind gifts. And that is a much different story to which you alluded correctly. This is truly where any such donor of in-kind donations to a non-profit organization must consult and comply with the explicit IRS rules when it comes to seeking a charitable deduction, especially when they make an evaluation of $500 or more value of such in-kind gifts. You cited a $5,000 amount, but correct me if I am wrong, but the number appears to be $500.
Just a few weeks ago, my wife and I were settling our 2011 tax return with our preparer, and we talked about a good deal of in-kind donations which we expect to give this year to a number of charitable organizations resulting from an intended sale of our home and the usual clearing out process of many unwanted or unusable items. It was then I heard for the first time about IRS Form 8283.
We were told, and I have since done a Google search accordingly and found that, whenever a deduction exceeding $500 is claimed for a non cash gift, the donor must file Form 8283, Non cash Charitable Contributions Form. While this may be news to some individuals giving in-kind donations at or above that amount, I would expect that most any business would have that requirement right at hand and follows it exactly.
It is good though, that you brought up the limit to where donors of in-kind must take heed of the Form 8283 requirement, as most whom we deal with here are individuals. An example of the form can be readily found with an Internet search. Proving the values, once one goes over the $500 limit requiring such filing, would no doubt be a formidable challenge because the IRS knows how easy it is for in-kind donations to often be over-evaluated. And again, the non-profit receivers cannot, and do not, provide any such meaningful and applicable evaluations.
I have helped organizations receive from a company helping non profit s with over one hundred million a year in donated materials.So it may be easy to over look,but you need to file the IRS form 8283 with donations above 5,000 of in kind gifts.,please correct me if I am mistaken .Me SudahUmmahArt&Cultural Organization.
Carla: The donor apparently did not think it important enough, or necessary, to himself provide an inventory of the cards donated to your organization. If that is so, that is strange, especially if there is meaningful value which only the donor can determine from an appraiser in the event a tax-deduction is possible. I would have thought he would have an exact count and type of card inventory. If he did give such details, you can acknowledge his inventory by simply stating that you "understand" that boxes contain (such and such).
Thus, for a prompt acknowledgment now, you can simply refer to the receipt of those boxes in the number of boxes, citing the large quantity of cards in the way you stated above. But, you should get to work to develop an exacting inventory, and you can say that you will be doing that in your letter of thanks.
The value in the “marketplace” to collectors of such memorabilia is something you cannot know at this time, unless the donor said so, and then you should only say thanks for the cards, which you “understand” have significant value, and through the donor’s generosity, you will leverage the value of those cards to help raise money for your organization.
Maybe sooner than later you will need to put those cards in various states of order, by quantity per sport, by athlete, era, etc., so you are in the best position to offer them in the ways you intend to raise money. At that point, you will have an exacting inventory which you can later include in a follow-up acknowledgment to the donor which is not intended at all to have the donor of the cards come away with a valuation from your organization. This is more of a courtesy exercise to show in detail the extent of his generous donation. All appraisals for such in-kind collectibles or memorabilia for tax-deduction purposes, is up to the donor.
It would be important for you to know the value in that collectors’ “marketplace” so you can offer the cards at appropriate donation levels.
You need to know, for example, if a Mickey Mantle rookie year card can be obtained from your organization for a donation to your organization for an amount at least equal, or better yet greater, to its value to collectors.
Bee: First, a pair of very big “ifs.”
If, whatever those particular two individuals (in-kind donor and buyer) want/demand, can, with some certainty be an isolated issue, and have little chance for others to notice, to care, and to claim the same recognition—and especially if the buyer is, and would continue to be, a major donor—then you go ahead and do the listing.
But, in reality, you cannot give “equal credit” to an in-kind donor of an auction item and the “buyer” of an auction item. The former is giving up something for nothing, and the latter is ending up getting something, no matter it was from a successful bid.
The latter receives significant gain for his or her purchase/donation, and is being unreasonable and unrealistic to want to claim what money was given for what he or she received in value.
Aside from the caveats in my first paragraph, foregoing any risk of alienation, the purchaser/donor of the item should not get such credit, and her or his name most assuredly would not be posted publicly with other true donors.
The example I gave of the paint company was explicitly related to the donated paint being a direct monetary relief of the capital campaign budget of the new building for the non-profit. The same sensible and deserving consideration was given to in-kind donors of such things as beds, mattresses, counter tops, furniture, etc., all which were items budgeted to build and furnish the new Ronald McDonald House. Thus, those in-kind donations were truly credited publicly in every way for what they did indeed save the RMcD House from spending “retail.”
However, giving items for an auction is another matter. And certainly so when one buys an auction item.
No matter the item or cost to the donor of the auction item, such donations are not treated in the same way as regular donations of cash. They get public enough with their listing in the program of the evening and on the display table. The acknowledgments simply cite what you understand the value to be which in turn allowed you to receive a cash donation for someone wanting that item.
Such donors can, if you wish, be simply listed separately in an “In-Kind” donation category under various levels, but not to be emblazoned on a wall or cut into a plaque.
And the individual making the purchase/donation of say, $5,000 for a week’s stay at a condo in the Bahamas, cannot, should not, be given public credit for a $5,000 donation to your organization. The IRS would surely forbid it, and so should you, unless that donor has been a regular major giver and could continue to be. You may need to compromise somewhat in carrying out policy, but avoid doing so if you can.
How do you acknowledge several boxes of baseball, boxing and footbball sports cards? Do I need to know the exact number of cards and each players names? How should I hanlde this donation?
How do you acknowledge items donated for a fundraising auction? More specifically do you give equal "credit" to both the person donating the item and also to the person that actually purchases the item at auction? NPO has a prominant donor recognition plaque and both the item donor and the item purchaser want their names on top billing. Your paint mfg example makes sense to give credit for the higher value, but I'm muddled w/ the tug-of-war between two donors for slot in the bronze section, when NPO only rec'd one bronze value…thoughts?
Mario: Yes, you should give those donors an in-kind donation receipt, just as the term makes clear, be it for products, goods, and services, but not in any way giving an expression of the value they claim for the in-kind donations as you would with cash gifts.
Just adapt the sample letter in my above article to thank them for "… saving you from spending $ ____ with the beverages they donated, which will allow you to spend less for the fund-raising party, thus having those net proceeds funds directly available for your organization to carry out its mission doing its good work. Something like that would work.
I do fundraising house parties for my non-profit and individuals will supply food & beverage and party supplies for the event – am I able to write them an in-kind donation receipt for these types of goods?
thanks
Jamie: I am not an attorney or an accountant, but I can tell you what I have come to understand to some degree. There is a great deal of literature and rulings from the IRS regarding gift cards, much of it still making some pronouncements unclear.
There are two ways to look at what you wrote, and each would have a different way of providing acknowledgment:
(1) If the gift card came directly from the grocery store, say for $50, it is clear that the actual in-kind donation by the grocer would not be in that full amount. The card would be applied to merchandise which would not be at the exact cost paid by the grocer to his vendors. So, you simply use a form of the letter sample I have provided above in my article.
(2) However, if an individual paid $50 for a gift card at the grocery, that $50 is indeed cash out of the pocket of the purchaser.
From what I see from the proposed, pending and current IRS regulations, the IRS appears to lump gifts made through gift cards in the same category as gifts of straight cash. My guess it that it would be appropriate to acknowledge a gift made with a gift card in the same manner as the organization acknowledges gifts made by cash, check, credit card, or on-line cash transfer.
As far as I can tell, these Regulations are still "proposed," but this appears to be the only guidance there is.
I suggest that you go into the IRS website and conduct some research. And good old Google should turn up plenty when you type in words such as—donations of gift cards.
Eron: We appreciate your approval of what we try to do here. Keep looking in, as we add new material on a regular basis.
I see two ways to go with the composer:
(1) You pay the composer the full commission fee of $6,000 and the composer in turn makes out a check to your orchestra in the amount of $3,000 as a tax-deductible donation. However, since the $6,000 would then need to be declared as income by the composer at tax filing time, the composer’s tax professional may determine this to not be in the best interest of the composer, perhaps taking her or him to a higher tax responsibility level. Nonetheless, maybe this idea could be mentioned.
(2) The composer cannot get a tax-deduction for the $3,000 amount of the composition fee he or she is giving in-kind of services. That is clear in the IRS 526 Publication. And you cannot certify such actual value.
You will be paying $3,000 and that is a separate issue and transaction. There will be a contract and receipt for your payment of the $3,000.
In your letter of acknowledgment, for the in-kind donation, it is not necessary to refer to what you paid, as you can simply, and only, say something along the line of: “That by (her or his) generosity, you understand that an in-kind donation was made to your orchestra of a significant reduction in the amount of $3,000 from the music composition fee which saved your orchestra from spending that amount which instead will lead to you having those funds to directly benefit the orchestra in other ways, and to continue its good works.” (Something like that.)
That should do it. That way you publicly recognize the in-kind donation, but you avoid declaring actual value the performer can claim, which would be in error.
See a similar sample letter in my article above these comments on the subject.
We are a non-profit that frequently receives donations that we give away at fundraisers or community events. For example we were recently given a $25 gift card to a local grocery store. Am I able to give a tax deductible receipt for this?
Tony,
Great article provides clarity on the issue. I have a related question. I am with a non-profit community orchestra and we have commissioned a piece of music from a composer. The current thinking in the draft of the composer agreement is to structure the agreement such that the cost of the commission is $6000.00 with $3000 cash payment from the organisation to the composer and a $3000 in kind donation from the composer to the orchestra. Do you think that this is problematic? We do not plan to then subsequently provide any "in-kind acknowledgment letter".
Eron
Linda: This is something you must discuss with your attorney and/or accountant regarding your donation to the charity. My writing on in-kind donations deals only with how and when to acknowledge them from the standpoint of the receiving charity. Then, it is never to offer any official valuation, which would not be acceptable to the IRS anyway, but to only have the charity say "thank you" for saving them what they would have had to pay "retail."
But, from what I see, though not an attorney, the Robotics Club can only thank you, and not even cite a value they saved by use of the barn, since I assume the barn is not a usual source of rental income. I cannot see how there can be a valuation regarding what you may claim as a tax-deduction unless what you offer as a donation of rental income. Even then, you must always check this out with your financial advisors. Do so anyway, should there be some possible claim for relief if you spend more money than usual for heat and electricity. Tax advisors will tell you what you can and cannot do.
Fpr your information, the following IRS document is quite useful.
IRS Publication 526
http://www.irs.gov/publications/p526/index.html
We are an LLC, and own a pumpkin farm. A Robotics Club is using our barn to build a robot. We want to give them the use of the facility as an in kind gift. How do we claim it on our taxes. What documentation is needed? We plan to use a fee times the number of days they have used our facility. Thank you. We want to handle this correctly.
Linda
Shin: The performer cannot get a tax-deduction for the donation of services. That is clear in the IRS 526 Publication. And you cannot certify such actual value.
You will be paying $5,000 and that is a separate issue and transaction. There will be a contract and receipt for your payment of the $5,000.
But in your letter of acknowledgement, it is not necessary to refer to what you paid, as you can simply, and only, say something along the line of—that by her or his generosity, you understand that an in-kind donation was made to your organization of a significant reduction of $5,000 from the performance fee which saved your organization from spending that amount which instead will lead to an even greater Gala net proceeds amount to directly benefit the organization and its good works.
That should do it. That way you publicly recognize the in-kind donation, but you avoid declaring actual value the performer can claim, which would be in error.
See a similar sample letter in my article above these comments on the subject.
I am with a non profit and we have a gala fundraiser once a year. If a performer normally charges $10,000 for a 1.5 hour show, but is willing to perform for $5,000, can a letter be sent acknowledging the value and actual amount paid? I know that labor is not deductible, but since we are getting something of value, I thought we might be able to acknowledge this in some way. Thank you for your assistance.
Sherri: I do not want to see you risk what is something of great value to the needy and deserving people you serve. It is a generous and thoughtful act on the part of the moving and storage company owner.
However, you could tell the owner of the moving and storage company that your non-profit, under IRS rules, can only acknowledge what is in fact donated to your organization.
You would be happy to send letters to the former furniture owners specific to the number and types of items actually presented to your clients.
But, I am troubled by another point.
Though I am not an attorney, nor skilled in non-profit law, I think you need to carefully think over the fact that your organization is not the actual receiver of the donated goods, which you in turn would yourself distribute to your needy clients.
The fact that the clients themselves are the receivers, may take the practice out of the usual way the donors of the furniture may make a claim for tax-deduction. While this may seem to be a subtle point regarding handling, I think it worthwhile to check in with your attorney or accountant regarding that your organization is technically “out of the loop” as the true receiver of the donated items.
And for sure, in any event, you should not send in-kind donation acknowledgments to the donors of furniture which was not actually given to your organization’s clients.
I am with a domestic violence non-profit. A local moving and storage company offers our clients furniture left behind by its customers. We send people there 5-10 times a year. He promotes this service (donating unwanted furniture to charities) to his potential customers. The owner wants us to send an acknowledgement letter to his customers. The concern I have is that the customer's furniture may or may not end up with my organization. If we don't have a need for it, it just sits in the warehouse. Other local non-profits also utilize the donations. Is it wrong of me to send a letter to the customers?
Thanks for your advice.
Cynthia: You are correct. Use the $10,000 in-kind contribution in an acknowledgment letter to only recognize the “value,” not as they see it internally, but as a value you only appreciate, especially since you did not need to incur such an expense in order to have a website development operation.
Take a look at the sample letter in my article above, and make the same statement of appreciation for what they saved you from spending—nothing more. Any tax-deduction for charitable purposes or as a business expense for the $10,000 in-kind donation, is absolutely something only the company can declare with their tax filing.
IRS Publication 526 makes that quite clear, in the event the company should refer to those rules for In-Kind donations.
I am the Treasurer for my church and we have contracted with a website development company to revamp our site. They are charging us at a cost of $2,500 but indicate that the market value would be $12,500. They have asked for a "gift in kind" letter for the $10,000 of donated services. I need clarity as to whether we should issue this type of letter as the gift is basically for their hours of labor and as I understand it, labor is not a tax deductible donation however we are receiving something of value. Thank you for your time.
Mike: Sorry to report that you cannot obtain a tax-credit for your donation of your professional time and services. Great and generous of you to do so for worthy charities, but no In-Kind tax break is possible
Some expenses may be claimed, such as when the services you perform for a qualified organization require that you be away from home overnight. But, is seems not much else.
Details are clearly stated and can be easily found in the following document.
— IRS Publication 526
http://www.irs.gov/publications/p526/index.html
I am a TV news anchor and am frequently asked to MC events for charities. Am I able to deduct as an in kind donation my services as an MC and auctioneer for these events? The IRS rules seems to suggest no. But I have been told by another person in my position that this is permissible. Anyone know?
Jay: This is a matter for your finance director, and for your annual outside auditor. I am not skilled in accounting principles.
But, I will venture forth in those to-me rather uncharted waters enough to suggest to you a common sense, intuitive, reaction to having in-kind donations’ values show up on your organization’s financial statements in terms of dollars.
I would say absolutely not.
For one thing, many such in-kind items have values which are not fixed or even known. Retail, wholesale, cost-to-manufacture, written-off items, and a whole host of other ways you cannot be sure what values to affix to which in-kind donation.
Worse, is that as values of items in dollars are entered into your financials, they are not real dollars. For example, were you a foodbank, you could not declare as a financial asset a flat-load of canned peas having a commercial value of say, $2,000. You cannot spend canned peas.
Once you begin to add such “values” which would inflate unrealistically your assets and bottom-line cash position, funders and other outsiders looking at your financials would see a much different and actually an erroneous picture of your true financial standing.
Anyway, that’s how I see it.
I am on the board of a not-for-profit company. We have been receiving Gifts In Kind for longer than I have been on the board. Recently, the question has come up as to whether or not the value should show up on the company's financial statements. The main reason for the question now seems to be whether they should be included in the "value" of the company, as we are seeking out like-valued companies in doing comparisons for things such as salaries and expenses.
Cheryl: Do not provide a tax receipt for the exact expenses. It will do no good.
Have your volunteer see the simple explanation in the IRS Publication 526 for expense deductions they can and cannot take. Mostly, it's cannot.
http://www.irs.gov/publications/p526/index.html
Your organization should have no part in providing any acknowledgment which may look like it is an official value declaration. But, to give due credit, the "value" may be cited in your listing of donors in your Annual Report, and other such ways to pay homage for the significant in-kind donation the volunteer has given.
Just as I suggest in my article above. Use the example there.
How do you acknowledge donations when theree is an actual cash value? For example, a volunteer for a non-profit drives several hundred miles, spends the night in a hotel, etc. on behalf of the non-profit. They do not seek reimbursement for their gas, hotel room, etc., but did send an "In-Kind Expense Report" with receipts for their actual costs of the gas, room, meals, items purchased for use by the non-profit. If you have an actual cash value with receipts for the expenses they are donating, do you supply a tax receipt for the exact expenses?
Tonya,
This sounds to me as being a third party seller of something they sold for the owner of the item or items with your organization being the beneficiary.
If so, and since the owner of the sold items had the proceeds directed to your organization, I think it appropriate for you to send on your acknowledgment and thanks to that person in exacting terms of the cash received. While he may have sold "in-kind" items, cash to you was the result and you should state that amount.
If the middleman seller did anything as the broker bordering on something charitable as well, then a separate appreciation note there may as well be a nice touch.
If off the target from what you wanted, please clarify.
How do you acknowledge proceeds from a sale that are sent directly to your organization and include the donor's name/info?
Thanks for the great article!
TG
Karen: Continue to use the suggestions in the article about how and when to word what in-kind donation value you could state, as for example:
— saving us from spending $ ____. (this could be literally true for having an in-kind for what you would have paid for anyway, or if not, that the generous in-kind allowed us to have what we could not have otherwise been in position to purchase.)
— our patrons will certainly enjoy use of the $ ____ gift certificate. (that way, you are not saying what it is worth. A $50 dinner gift certificate off the menu price, could very well have the dinner actually cost the restaurant say, $20, so you get the idea why you cannot certify any actual value.)
— your exquisite and “priceless” painting brought forth a donation to our auction of $1,000.
Just do not word anything which appears to certify a value which you cannot do anyway.
How you handle with accounting is up to your finance director and the outside auditor. Organizations handle such things in different ways. I think it best to show no actual value of the items, because for many, it is not at all possible. The bid money is made part of the income for the evening, along with bar and dinner profit, to have a bottom-line net proceeds figure.
Items donated to a silent auction are "valued" for the auction and sold from a minimum bid. how are the acknowledgements worded if we were to give a dollar amount and how are they treated as in kind on the chart of accounts?
thanks,
karen
Aina: Yes, absolutely place the donor in that range in that case. i have always thought it a good practice, one well received by donors, to total their tax-deductible donations combined with "paper credit" when possible and reasonable for in-kind donations, and for what they gave over the fair "market value" of items purchased at auctions. Remember, the comingled amount is one you determine for simple public (non-IRS) recognition for such generosity.
Under the various levels of donations made to the organization for the Fiscal Year in the Annual Report, for example, you place those donors at the appropriate levels commensurate with their totals as cited above.
The heading overall can simply state that the contributions come from all sources for that FY, including Annual Fund, Memorial gifts, Gifts in Kind, tax-deductible portions of special event tickets, etc. Even cash payments made to outstanding capital and endowment campaigns,
Something like that takes in all sources. No need to separate them. Our folks loved it.
Amy: Just as suggested in my article—that the donor “saved” you from paying that amount. You cannot give official notification of value for tax purposes. That is why the donor family themselves obtained the appraisal. They need to justify that declaration to the IRS, not your organization.
Carol: Sorry for the delay. We had a glitch for a short time with our auto-notice e-mail process to let me know of postings.
You should only cite the number of books donated. You cannot/should not provide a specific amount of value. It is up to the donor to justify/convince the IRS of any allowed tax-deductibility—not your organization. If a bunch of disparate books, it is even going to be hard for you to give "paper credit" in your annual report and such. I guess even there, you may only want to cite the generous donation of ___quantity____ books from the donor.
Thanks for the great info. The 501-c-3 non-profit I work for is struggling how to best acknowledge donors in our annual report that give in lots of different ways in the course of a fiscal year. Let's says we have someone who made a $500 cash donation, bought an auction item and can count $150 of that donation, and made an inkind contribution with a market value of $200. Can we put her in the annual report under the $850 gift range? I was thinking we could place an asterix for in-kind gifts and mention they are included based on market value. Any advice you have would be so helpful.
We recently had a family donate a piano to the school, and provided us with a copy of a recent appraisal. Do I make reference to the appraised value of the piano in my acknowledgement letter? If so, do you recommend any language regarding this?
Thank you,
Amy
Thanks for the great dialog here.
I have a question as well: Someone donated a library of books to our organization. They are items that we might be able to sell to bring in some donations, but are not something that we would normally sell or handle. The donor requested a donation letter for her taxes and wanted a specific amount listed. I believe we cannot offer the letter with a specific value amount. Any thoughts of how to best handle this?
Thanks,
Vinicius: In the first example, when you have an exact count of specific items, you simply state that inventory with a brief description of the items in your acknowledgment to the donor—just as you did above in your Comment here.
What, and how many. However, when you receive a quantity of something which is not possible to count, even if the donor gives you an exact count, you should say only, “thanks for the _____, which we understand totaled ______.
That way, should there ever be an over stating of what was donated, you did your best without declaring something you could not know—such as how may tacos were, in fact, eaten during the day.
If the GIK donor, or donors, along with their letters of transmittal, indicate their donated cost of the items, you do not include those costs in any way which can be construed as being an official value declaration for tax-deduction purposes. That is their responsibility to the IRS, however they go.
But, if the items were things you would have bought otherwise, just use the idea promoted above in my article which thanks them for “saving us $___, which we would have had to spend otherwise.”
If that is not the case, then, along with the description and quantity actually received, just state how those items allowed your organization to produce a successful event, and if it made net profit, tell them it was made possible in good measure by their donated items. If no net profit, letting them know the event was a great success anyway, thanks to their thoughtful generosity, is all you need to say.
Do the same for the donated tacos. If the company has any rough idea of just how many tacos they donated, then just say thanks for making the event such a pleasure to
all attending (or performing) “with your generous donation of tacos, which we understand totaled approximately ______.
If you have an idea of the approximate cost of the tacos, and any other items, remember, you only want to know that cost so you can recognize the donations’ value for any public recognition–only–not an offical-sounding tax-deduction declaration.
P.S. When our organization conducted a running Marathon, a large supermarket chain donated “about” 1,000 bananas. They told us there were approximately 1,000 delivered. There could have been 750, or even 1,500.
We were not about to count them. So, with our sincere thanks for what they provided to refresh our runners, we simply said, “…. which we understand totaled approximately 1,000 bananas.”
We are a Skateboarding Non profit org. and we are constantly receiving skateboard equipment as donations. Recently we received lots of equipment for our last fundraiser – Sept.24th I will give you an example of this company which donated 14 fingerboards, 1 skateboard deck, 12 hats and 16 t-shirts. How should I write this in-kind donation letter to this company? Also we received food from another company. This company provided tacos all day long at our event , I’m a little confused on how to provide the food company a receipt! Thanks!
Joani: Thanks.
I suggest that you describe exactly as you were given.
Of course, when what the donor gives is far enough removed from what is what was given, you point that out to the donor.
If the jeweler indicated “silver,” then you simply repeat it.
It is up to the jeweler to prove the silver content and worth with the IRS, should the jeweler choose to make a claim for a tax-deduction.
All you are doing is describing what you received, as you understand it, but again, no “official” declaration of value should be given.
Thanks for your great article. Our small 501(c) 3 organization recently held an auction. In preparing thank you notes for in kind donations how specific should be in describing the item? For example a local jewlery store donated a “silver” bracelet. Do we need to be careful with that language? Or do we just says bracelet. I appreciate all the clarification regarding not acknowledging the value of the item in the thank you nor the winning bid amount.
For Sheree Moore:
Sheree: I think it is OK to recognize most everything and anything someone gives to us in generous good faith. But, there are limits and variations.
You cannot go wrong to say “thank you” for something given. But each instance is treated in different ways by different organizations. Maybe the “deep discount” is not so deep after all, or it is very deep, depending if you were going to purchase the item in the first place, and at an amount higher than what the vendor charged.
You can recognize such a savings in the ways best for you.
The deep discount is not in the form of an actual In-Kind donation, since you did (or will) pay some amount of money—but if the discount is truly one of meaningful magnitude and value, not to mention if doing so cements good relations with the vendor—then you do find a tasteful way to recognize the savings.
Since, as an example using a computer deep discounted, the computer was not a GIK because you paid some money for it, you simply can declare that “because of the generosity of ABC Electronics, our organization saved $1,500 for the purchase of a much-needed computer for our office.” The degree of public recognition for this savings is up to you regarding it being practical, setting a precedent, how other vendors giving you price breaks will react, etc.
All of this has nothing to do, of course, with what the vendor does, or attempts to do, regarding any IRS tax deduction for the vendor. That is nothing you should declare. It is up strictly to the vendor.
Tony,
Thank you for such valuable information. You saved me and thousands of viewers. My parents have a non-profit organization and have struggled with how to properly acknowledge donations of good and donations of time. Your article and sample acknowledgment letters make crystal clear how to handle past and present donations. You save my parents and me a consultant fee of $5,000.00. Secondly, you have saved all of those who have viewed this article $5,000.00. Thank you. I wish access to the valuable information you provided had of been more readily available years earlier. However, moving forward, we will benefit from the valuable information you provided.
I appreciate you.
Thank you,
Erica C.
Is it ever okay to recognize an GIK when a vendor deeply discounts equipment purchased?
Crystal: As I understand it, the contribution of your services is not eligible for a tax-deduction. However, the organization should recognize your GIK in the way I describe in the article. It certainly is a GIK. The organization should not issue an official declaration of value of your donated GIK. It will do no good. On the other hand, look into the IRS Publication 526 for any possible tax break you can obtain for certain expenses you incurred while volunteering your services.
IRS Publication 526 Table of Contents
http://www.irs.gov/publications/p526/index.html
Go to “Contributions You Cannot Deduct” and note the exclusion of “The value of your time or services.”
And I am sure you will agree that now being a board member, you will stay an unpaid board member. Otherwise, that would be an ethical and possible legal issue.
Nice going to do your good work in saving an historic battlefield. My son and I have been financial supporters of such efforts to save and restore a number of Civil War battlefields. We did so again, including with a September visit to Gettysburg.
I am a Genealogist and Historical Researcher. I have been working on a project with my local SCV in an effort to save a historic Battlefield. I had only recently started my business when I was asked to become a member of the Board on this Project as a Researcher. I was charging $25 a hour but because this project as well as Other recent accomplishments I feel that I am now able to increase my charge to $35 an hour. If I am on the board as a Non paid member will that be considered as a GIK?
Eliza: I suggest that you use my article’s suggestions exactly as they are stated. From the article, though, I will summarize my opinion relative to the points you cited in your Comment posted above.
(1) Give $2,500 recognition in your print and other ways to the honor of such an In-Kind donation. Since a diner would get a $20 discount to her or his bill, then that is the “value” provided. But you should not cite such a value as an official valuation he can use with the IRS. He needs to do that himself. Naturally, a $20 reduction from a dinner bill, will be an amount in fact less than the true cost of the food. But, we stay away from such things. That’s why the charity never gives “official” valuations, but does give public credit, and recognition for what it would have cost “retail.”
(2) It matters not if any coupons are used, regarding valuations and recognition. If this is a one-time deal, just go on and give him recognition and credit, and forget it. If he wants to do it again, and the coupons are not worth your while or the effort, then you should say, “thanks, but no thanks, not this year.”
(3) The statement of your first member is exactly correct—it fits with what I suggest in my article. The gesture costs you nothing, and you gain good will.
(4) The second member is wrong. You do not “acknowledge” any given dollar amount, if by acknowledge, this would be an official valuation, one which your organization cannot do.
You simply cite the value of the free dining made possible by the face value of the coupons.
And, recognizing “half” the value, makes no sense. The coupon saves a diner $20. It’s $20 you recognize in the way I suggest. Coming up with another, arbitrary, number even for recognition at your event is wrong. (In truth, the $20 saving to the diner, may be but only a few dollars of actual expense to the owner. We don’t know how much it actually cost him of the $20 discount—and we don’t care. That is why we stay away from such faulty and useless estimates.
I hope this does it for you.
A restaurant owner gives 125 $20 discount coupons for his restaurant to our Women’s Club (501(c)3 as an expression of thanks for those putting on a fund-raiser. He values this as a
gift to us of $2500 and wants recognition for having given at this level to the club. Very
few of the coupons are ever used and some members (415 members) feel this does not qualify as an In-Kind gift. One member is insisting that the owner should be recognized in print at a Level indicating the gift is for $2500 and therefore would be qualified to be honored at our Sponsor Party held annually.
One member says we can acknowledge that gift at half the value the giver lists. Your
article indicates that cannot be done.
There are so many differences of opinion that we are at a loss how to handle this.
Your input will be so helpful. Your article is great!
Beth: Apart from the accounting standards you follow as a professional in that field—in concert with what your outside annual audit CPA rules—I can only give counsel to you as I would practice myself. I feel certain we will both be within the guidelines, but I will give my opinion regarding the variables in how you account for those In-Kind donations. With the IRS rules clear, that any declaration of GIK value for tax benefit, is to be the responsibility of the donor of the GIK. In my article above, I make equally clear that the receiver organization can provide “paper credit” of some sort, as a good donor relations gesture.
I would not indicate in the acknowledgment the value of the GIK as it was stated by the donor. It may inadvertently give tacit certification of that value to those not well versed in the IRS rules. From the example in my article, for the times a GIK does actually save an organization a budgeted expense, then we express that in thank you letter, as saving us from spending that money.
If the item was not of a budget line-item relief, then I would only stick to a detailed description of the GIK, and as best you can, state how the item or service will be of benefit to the College. That is not always easy to do. (For a radio fund-raising “Marathon” to benefit our Orchestra, we solicited premiums from merchants and others to offer for certain donation levels. During this activity, we found on our building’s loading dock, a pallet of books, not solicited, but books from a well-known and influential author in our city, whose book was no longer selling and he needed to unload what he had to get the best he could from the IRS as he would declare his “gift.” All we could do was to say “thanks” for the 400 books which were of absolutely no use to us. The books did not save us money. They did not make money. No matter his $25 per-book retail value, we cited no amount in any way. This does happen.
How you handle such GIKs internally, to accounting standards, and to be OK’d by your outside Auditor, probably does simply “wash” with the way you stated to being “net zero.”
Actually, because of the vagaries and the problems of coming to grips with true values of GIKs, we did not enter any GIKs into our accounting system, except for those which actually did relieve a line-item, budgeted expense, such as the printer who donated our Annual Report.
I am an accountant with a 501(3)(c) community college foundation. We acknowledge In-Kind donations with a thank you stating Thank you for you donation of (blank)which you valued at $xx and go on to state how that will aid the college. We receive everything from gift cards to give or auction at campus events to cars and expensive equipment used in labs. Basically we pass thru the items to the college. We account for them with a separate account for In-Kind donations and expense them in a separate account for In-Kind expense. This always nets to zero as we use the donors value to book it and we can compare totals on our financial statements year to year. Do you have any suggestions on these practices?
Adria: Yes, have handy a simple receipt book, or copies you may make of a simple form. If the latter is printed, indicate your non-profit status. If the former is simply a receipt book you can buy at an office supply store, write in the name of your charity, rubber stamp it, or write it by hand.
In all cases, you need only to identify the items by quantity and by name–no mention is to be made whatever of “value.” That declaration is up to the donors of the items. You can suggest, if you choose, that donors of some of the more “expensive” items should take their own photos of the items should they wish to later provide even more proof of the donation should they choose to so itemize.
If you want to go farther in your assistance to donors regarding their later declarations when filling out their tax forms for the year, get from the Salvation Army, Goodwill, etc., their general listings of the suggested values of most household items.
Having copies available for your donors, as strictly a guide in general, may be a nice touch—but again, such guides are just that; they are not your organization’s official declarations of value.
Any donor later wishing to itemize donations to your yard sale, must themselves provide proof and documentation of the so-called “Fair Market Value” of the items. You simply, and only, say what they gave in terms regarding description of the items, and in what quantity. You should not attempt to state the condition the items are in. Have someone representing the organizations sign the receipt, and indicate the date.
More can be found in the following IRS Publication 526
— Contribution of Property
http://www.irs.gov/publications/p526/ar02.html#en_US_2010_publink1000229704
Best of all good luck with the yard sale.
Our middle school is having a yard sale.
Mostly, in the past individuals who have donated articles for the sale have not asked for a receipt for donated articles to be used for tax purposes. The organizers have asked whether it is advisable to have a form on hand for those who may ask for one.
There seem to be numerous models, including forms that allow for a representative of the organization (in this case the PTSO) to sign as a Receiver of Goods, as well as a place for the items to be identified or listed. One of the models is the Salvation Army receipt.
My understanding is that anything under $500 could be accommodated with this kind of receipt. It’s highly unlikely that anything over $5,000 will be donated for the yard sale.
Thanks for your thoughts.
Sylvia: Read again what I wrote in the article as having two very different positions when it comes to a recipient non-profit accepting and recognizing an In-Kind Gift (1) The donor of the GIK is the one obligated by the rules of the IRS to come up with the donor’s own proven valuation of what was donated when making such claims on their tax reports. (2) The recipient non-profit should only acknowledge the article, product, or service with a narrative description, but as well, as I suggest, in order to provide thoughtful and appreciated acknowledgment, the non-profit—only in a symbolic way—can say “thanks for saving what it would have cost us retail.” That is made clear in the article. (We will talk about the difference with auction items below.)
We risk possible misunderstanding if we proceed in any other way. For example, were you to have the need to paint the facility, and you budgeted for 50 gallons of paint at the approximate paint store cost of $15 per gallon in your Fiscal Year expense budget, but the paint company donated the 50 gallons of paint, you would have no way of knowing the actual cost to the paint company which only they can declare. Maybe it only cost them $3 per-gallon to make the paint. Or maybe the paint, while still good, was past the desired shelf life, and the paint company wrote off the the expense as discarded merchandise. You still, however, just to be thoughtful, and to be true, say thanks for what you would have had to pay otherwise. You must work to see the divide between the responsibility of the GIK donor on his or her own to accounting for the donation, and your purely good donor relations gesture in terms of the good it did for you. You can see how you dare not give an official declaration from your organization that the GIK donation of paint they are free to declare is the $15 per-gallon for 50 gallons, when you have no idea what they can rightfully declare in fact.
Now, to be more specific to the variations you cited in your Comments above: You wrote, “…and I think what you are saying is when we get items donated to auction we should account for them at the stated donor value and then adjust for what the item sold at as the true donation after the event.” Yes, to the former. No, to the latter. You go by the word of the donor, but only in the case of auction items you would not have otherwise purchased. You simply say that you “understand the value of the donated (item) is approximately ($), which will allow you to seek auction bids to benefit your organization’s special event. If the successful final bid is higher, then you simply state what was bid, and say thanks for making it possible. If the successful bid was lower, depending upon how low, it could be embarrassing to tell them what that poor bid number was compared to what was thought to be the original value. That is why I think it best for sure to give all acknowledgments in advance of the event and the bidding in the way I describe, and avoid doing so after the event which could cause embarrassment should a bid for what was a $1,000 item in the mind of the donor, bring a winning bid of only $500. Even if you establish a minimum bid for each auction item, such an uncomfortable situation may still come about. It is best to give all GIK thanks in advance for that good reason in the way I describe above. Even so, for any public recognition, and for thanks to donor, you only go with what was deemed to be the value in the first place, and never what was ultimately bid, whether higher, or lower.
Your bookkeeper in in error. The only time such accounting would be in effect is in cases such as I described above, when painting the facility was needed and factored into the organization’s expense budget. Never for random, donated, auction items, or for that matter, any GIKs which were not given to directly pay for budgeted expenses. The bookkeeper would understand that when, for example, you had a furrier donate a fur coat for your auction. Would your organization have made such a purchase in the first place? Apply that reasoning for all donated GIK auction items.
I am confused about gifts in kind still. We have an auction and I think what you are saying is when we get items donated to auction we should account for them at the stated donor value and then adjust for what the item sold at as the true donation after the event. My bookkeeper thinks that we also have top account for these items as an expense – since she said we would have had to buy them if we didn’t get them donated. I disagree and think they are simply a donation of value and there is not corresponding expense – which would in effect wipe out the value and inflate our expenses for which we had none.
Thanks Tony for the advise on in-kind donations(Aug 6th post).
Lee: Thank you.
(1) Of those several folks who said they would attend, but did not, can you appeal to them, one by one personally, to make up what they cost you? You may even find that one or two, close and sympathetic, will themselves make up what some others say they will not pay.
(2) You will, next time, be sure that any such reservations for which you are liable, are paid in advance.
(3) With the invoice, you apparently paid half from your organization’s funds. The $500 balance was “forgiven,” thus is a generous In-Kind donation. You simply acknowledge it in that way; “Thanks to your thoughtful generosity, you only require that we pay $500 of the $1,000 event charge, thus allowing our organization the use of those funds to continue to carry out our important mission to the community.” (You can use the sample letter in the above article, and simply fill in the blanks.)
(4) It is up to the owner of the hotel regarding how much, in fact, he can declare to the IRS, should he wish to do so. You can only state what he saved you from needing to pay.
(5) And do follow my suggestions in the article regarding how you will recognize his support publicly.
Tony,
Wonderful article.
My organization recently held an event at a local hotel. Several folks who RSVPed that they’d be attending were eventual no-shows, costing the organization close to a thousand dollars in wasted funds. The owner of the hotel, who also happens to be a donor to the organization, essentially forgave half that amount, but on the invoice noted the amount (~$500) as a “donation.” How do we acknowledge thd donor adequately without crediting them for the full amount of the gift?
Many thanks.
Katie: Following are both my replies:
(1) The literature is readily available in the form of a publication from the IRS website. The section dealing with your question makes clear what your members can and cannot do. It could perhaps be to your advantage to download from the IRS’s website its Publication 526. It explains which deductions one can, and cannot make. Plus the link following works to access the Table of Contents of that IRS Publication.
http://www.irs.gov/publications/p526/index.html
Following is some of the instruction you and your members should read:
“Contributions you cannot deduct”
“Out-of-Pocket Expenses in Giving Services”
— They cannot deduct the “value” of their services, but they may be able to deduct some amounts they pay in giving services to your organization. (That can be a real stretch for them to prove to their tax preparer and the IRS, when the “expenses” are connected to their attendance at an entertainment and pleasure event.)
So, the amounts must be, among other things you can see in the IRS Publication 526:
— Directly connected to the services;
— Expenses they had only because of the services they gave;
— Not personal, or living expenses.
You must not be put in the position to declare any accredited-by-your-organization values of this kind. It is up to those individuals. You can certainly thank them for paying the cost of the Patron ticket to the event, less market value of benefits they received, i. e., dinner, but in no way, in my opinion, can they declare travel and other expenses just for showing up.
(2) Just look above at my article to the section, “Sample Acknowledgment for an In-Kind Gift.”
Simply get the board member’s best estimate of the cost of printing, toner, printing paper, etc., and write the letter as my example shows. You do not declare that total estimated cost as an official value for the reasons I cite in the article, but you can state the amount being what it saved your organization from spending. Use the sample letter, and fill in the blanks accordingly. It is up to the In-Kind donor to work with her or his tax preparer in accordance to IRS rules for any possible deduction—something you should not attempt to do.
The other question I have is related to expenses incurred my members/board member on behalf of our nonprofit/event-related. How do you acknowledge money spend on printing, toner, mailing, printer paper, etc.,by a member/board member, who wishes not be reimbursed but would rather receive an in-kind acknowledgement for those expenses?
Can expense incurred to travel to/from, and other expenses incurred while attending, a nonprofit organization event qualify as in-kind? We currently have board members and other organization members who would like to receive an in-kind donation acknowledgement for their travel expenses to and from a fundraising event. From reading the comments and the article the answer is “no.” So, then my question is there any literature out there that spells this out in clear, nontechnical language?
Susan: Important two points, I believe for you make legally happy the donors of the auction items, and the purchasers/contributors of those auction items
:
1. that you work with your accountant, keep reading the IRS Publication 526, ask other benefit auction organizations what they do, and seek estimates of values from the auction item donors themselves for, not official evaluations, but for estimates of their “Fair Market Value.” What it would cost “retail.”
(2) That you especially tell that “other half of the Board,” the group which wants to give full credit to—the gross amount spent—the buyer of the auction item, that such an transaction is illegal. Any “contributor” receiving any goods and services, which they are certainly obtaining, must deduct the fair market value of what the receive from the amount they tendered for the auction item. I can see how some can be confused regarding coming up with what the IRS will later accept as the FMV. But it is beyond reason how half of your Board can expect to claim a full tax deduction of, for example, $10,000 made to obtain an auction item of airfare and hotel accommodations. These are obvious hard and fast items with real “retail” value they are receiving.
When you offer tickets for “sale” to your fund-raising event (dinner, auction, etc.), should the cost per patron be, say, $250, you know that you must let that patron know that the amount allowed for tax-deduction purposes, is the amount less the $250 for the “fair market price” of what they receive/will receive when they attend, i. e., dinner, refreshments, valet parking, table favors, etc., as best you can determine. Then, it is up to the potential patron to purchase their ticket and apply those numbers when tax-preparation times comes along. There are times when such a person will simply send the money, while checking the usual box on the invitation that they cannot attend, but “here is my contribution.” Receiving no benefits, that is a full tax-deduction amount.
The same goes when you get into “big ticket items” for an auction and folks receive those big ticket items for their purchase/donation. Here is where your charity is obligated to tell the purchaser of the auction item the fair market value of the item so that the purchaser can claim a charitable contribution deduction if the “price” is more than the value. In that case, the purchaser of the auction item can claim a deduction of the difference. If the price is less than the fair market value, of course, the purchaser cannot claim a deduction.
Since the donor of the item for the auction is probably also claiming a deduction for the value of the item, it makes sense to talk with that donor and try to agree on a fair market value that you can suggest to the auction item buyer. Just as you do with Patron’s benefits as cited above, your charity has an obligation to seek an estimate to tell the purchaser. (For the Patron deal, you would ask the caterer for an estimate of the Fair Market Value of the dinner, average refreshment cost, and the parking company for the free valet service market value received. No different for the auction items.)
Many popular auction items are service items, like a week at a vacation condo, for which the donor gets no deduction, and the purchaser is able to claim a contribution deduction only if, and to the extent that, the price is more than the estimated value of the service.
The filing requirements for obtaining substantiation and for claiming charitable deductions for gifts of property are imposed on the donor, not the charity. A charity which wants to receive significant gifts, however, will work with its donors to assure that they are able to comply. If the proper acknowledgments are not obtained in time, the entire deduction can be lost.
Whatever the item donors and the item purchasers in the end actually claim to the IRS, is their business.
Tony, I think I’m finally getting my arms around this issue but want to ask a few more questions. Every year we hold a massive fund raiser and during the event we auction off a hand full of high ticket verbal auction items. Our Board of Directors is split on how we “book” the income. Half of them think that the buyer of the item should be credited with the net value, in other words, what they paid for it less the value. They also think that the donors should get credit for the gift in kind even though it was not cash. This method would mean that our buyers are only getting acknowledgement for a small portion of the check they wrote to buy the item. (A trip to Greece might retail for $17,000, the buyer pays $30,000. We send a thank you note to the donor and book $17,000 as income and then send a thank you to the buyer and book the additional $13,000 as income).
The other half of our Board thinks we should give full credit, or gross amount, to the buyer of the auction item. The donor gets a letter acknowledging his/her in kind donation worth $________.
Another question, does a non-profit have to show in kind values on their 990’s?
In both cases what either the donor or buyer report to their Tax Accountant is their business and not ours, am I right?
Marie: If the company is in the business using such booths, and taking pictures, developing them, etc., the company, after the event, should give you some idea of what such a commercial enterprise/installation cost them. Your acknowledgment should at first, cite the physical items, such as the booth, number of photos taken and developed, any of their people providing service, etc. Ask them what was the cost to them in total. Your letter should only say something along the line of, “We understand that your generous in-kind donation would have cost us approximately $$$ were we to have such an installation.
Accordingly, do follow my suggestions above for giving them public, “paper” credit. By paper credit, I mean that you provide nothing coming from your organization what may be taken as a liter, official, valuation. From reading my article, you know that is not the proper thing to do.
This all applies as well if the company has any of its employees working the booth photo operation. You would not, as well, give anything official-sounding regarding the cost of their time.
Really nothing much different from what the above article describes for accepting and recognizing in-kind donations.
Nice donation, and I hope the photos help you to make a good amount of money for your organization.
Be sure to give them plenty of all the possible visible credit before, during, and after the event.
A company would like to donate a photo booth for the duration of an event and the photos taken during the event. What portion can be considered gift-in-kind? Any suggestions on acknowledgement wording? Thank you.
Marcia: If the individual “personally paid” the cost of the brochure with his payment directly to the supplier of the brochure, then of course, he did not give a $150 cash donation directly to your non-profit organization. He “saved” your organization from spending $150. So, no such $150 donation receipt/acknowledgment should be given. It would be untruthful and illegal.
You should follow what I recommend in the article, and treat his direct and personal payment of the invoice to the supplier on your organization’s behalf as a gift in kind. I make it clear exactly what you can communicate to him, regarding the savings to you by his payment. How he handles the transaction with his tax-preparer, is solely up to them.
You can reimburse him, if that is what he wants in the end, and if you choose to do so. If that is his idea as an alternative, for somehow wanting to get his money back in some way, or looking to have the payment recognized as a cash donation for tax purposes, then I wonder what good his payment to the vendor was in the first place—unless he got a good discount deal for you.
The only other way it would have worked, was for your organization itself to have paid the invoice. As agreed in advance or later, in turn, the donor sends a check in that invoiced amount, payable to your organization as a contribution, which is then tax-deductible.
That way, the expense is underwritten, a method quite common with donors and non-profits. After all, that process is a prime feature of capital campaigns—where many donors, via the “named gifts” feature of such campaigns, make tax-deductible donations directly to the non-profit for specific purposes, which in turn can then be applied to “pay” countless invoices for building materials, furnishings, landscaping, etc. Any other way, such as a donor paying a vendor directly for something, and turning the item over to your organization, is a gift in kind.
Follow exactly what is suggested in my article.
A member of our 501(c)3 non-profit organization personally paid the cost of printing a brochure ($150). Instead of being reimbursed, he wants a receipt for the $150 as though it was a cash donation.
By the time I finished reading the IRS 526 instructions as well as your information I had thoroughly confused myself as to whether to issue a tax deduction statement of a very nice thank you.
Marcia
Many, many thanks for your response and assistance, this last day of the fiscal year! I really appreciate your insight.
Angela: I suggest you do not book any of the $18,000 office renovation In-Kind gift to your Annual Fund. You really cannot anyway from an accounting point of view.
For one thing, the GIK is not annual, thus any amount booked would not be repeated for the next Annual Fund Campaign. You would, in effect, be inflating the Annual Fund Campaign with a “paper credit,” which amount would be looming for next year to make up. So why unnecessarily increase that operating deficit “gap” for the year following?
In any event, the generous GIK, while saving you plenty of cash were you to need to make the renovation, and pay for the renovation, on your own—nonetheless, the GIK is not cash which can be entered into the Annual Fund directly to reduce accordingly the operating deficit.
If some, or all, of the office renovation cost was in fact entered into the organization’s annual operating budget for one year or more, the result would have been that your Annual Fund Campaign goal would have been set that much higher. That cost, being part of the AF goal, would have been worked to by conducting your AF campaign in the regular ways, seeking new cash and pledges and asking for increased donations—all in the mode and spirit of what an Annual Fund Campaign is: The seeking of a strong and repeatable base of donations you can work to count on year after year. One-time, In-Kind gifts, do not fit in that way.
Publicize that very generous GIK in your Annual Report in a separate section devoted to such donations. If the office renovation was well beyond other such donations in money value and scope-of-project, it could be of inspiration to others and a worthy gesture to the donor for you to print a photo of the finished renovation in the Annual Report and give appropriate credit there.
How your generous benefactor reports what he gave to his tax preparer and the IRS, is solely and strictly up to him—as I report in my article above. True, you do not provide the $18,000 GIK amount as an official and certified donation, but from the example in my article, you certainly can say with pride and appreciation, how much that generous donation saved your organization from paying for a much-needed improvement without spending funds which must be spent to directly carry out your Mission.
I would be most grateful if you could respond to this question. Our non-profit, which has a $250,000 annual fund accepted a donor’s gift in kind of completely renovating an office in our building. He is a skilled carpenter, and originally he was to give of his time and materials, and we agreed to pay for an electrician and second laborer. In the end, the donor covered all costs and provided a detailed invoice of materials, labor for himself and the other two, totaling $18,000. We formally acknowledged this very generous construction project without stating its value in a letter. What part of this gift in kind can I book to my annual fund? We certainly value this as an $18,000 gift and will report it that way in our Annual Report, but, just as I book other gifts in kind at a value, can I do the same for this one? MANY thanks.
Marianne: Maybe the last thing you need is any document, especially one in “legalese,” which focuses far more attention to what is a rather simple and innocuous form of receiving donations.
if In-Kind Gifts do not need to be, nor can be, a primary source of donations of products and services to your organization, then I suggest the least you do to highlight them, the better.
Even if your organization is of the type say, of a Ronald McDonald House, where the many living units for families of children ill or injured in local hospitals, would require and seek GIK for obvious needs, the focus on securing such donations is just that; Focused.
They need rolls of paper towels and toilet paper by the hundreds. They identify and ask the most logical supplier for that GIK and the RMcDH saves plenty of money. When I consulted for a RMcDH new building campaign, yes, the many products needed were in a GIK division for the several million dollar campaign. We targeted the purveyors of formica, for example, and did unofficially have a goal for GIK, because of the many prime opportunities. But, the seeking of cash was always in the forefront, even with such a capital campaign. Once up and running, the House put the solicitation of GIK in its proper discreet position, because again, they needed cash to pay the bills.
There should not a general, public, campaign, or too much emphasis placed on securing GIK. The risk being that you will be offered things you do not want or need. It is then a tough thing to do to when it comes to turning down such donations, even when the items are outdated, obsolete and even damaged. (I know this from hard personal experience.)
Other than the RMcDH example, cash is always better.
I suggest you simply adapt material frm my article as your “Policy Paper” if your leadership insists on such written documentation.
And I especially urge that you do not have such a special policy/document for the Board.
You must find a way to tell that Officer, “Thanks for thinking about us, but we aren’t the right place at the right time for that generous gift. We would not be able to get full value out of it.”
Otherwise, you are correct. The cash-giving bar will indeed be set lower, others may follow the example, and your need to raise cash, cash, and more cash, will be harder to meet.
I consulted for a hospital, and initially saw that the Board’s Annual Fund giving was far below what was there as obvious potential for many of the individual Board members. We rated each one for likely potential. The Board President not only should have been the pacesetter/example, but she had the highest rated giving capability. When asked for that cash new Annual Fund donation, she insisted that we credit her donation for the amount of $30,000 annually, since that was the estimate of her donated time of providing PR/Marketing/Communications services from her professional business. (Much of which we actually did not need.) Considering her high position and strong influence, we were forced to do what she wanted, and you can well imagine how ineffective she was when it came to convincing her Board colleagues to give cash, some were to be asked for major donations. The Annual Fund sputtered and came nowhere near what it should have been, all because of the example set by the insistence of accepting and using a GIK which was not appropriate to the situation.
Hi Tony – thanks for an interesting and informative article. I have a couple of related questions. I’m presently tweaking our organization’s Gift Acceptance Policy which makes no mention of Gifts In-Kind (with the exception of real property). Can you suggest some language about gifts of products, time and services that would be appropriate for such a document, written mostly in “legalese”?
Also, is there a provision that should be made for Board giving in accepting In-Kind gifts? One of our officers wants to make a gift of services that basically has no value to our organization, but would make him feel good when measured against more affluent Board members. It would set the bar very low just at the point where the Board as a whole is starting to take fundraising seriously, and we’re starting to get some good lead gifts in. It’s a problem. Thanks!
Cathy: While not an expert regarding the IRS rules, nonetheless, I am relating the process as I see it from experience with our Orchestra’s patrons’ donations of tickets we have used in the way you described. What you have read in my article applies. Do follow those guidelines.
(1) Ticket Donor: Gives you tickets. You only acknowledge, as I cite in the article, that the tickets, “as you understand it,” have a “market value” of $_______. You give no official-sounding evaluation. It would do no good anyway.
The donor needs to reconcile any possible tax benefit with the donor’s tax preparation action. Who knows? That donor may have not have paid for the tickets in the first place, or may have paid less. It is up to them to declare, or not, whatever they can declare for tax benefit purposes. You are just saying that it is generous of them to give you those (two $50) tickets to benefit your institution.
(2) Turning around, and the giving them to a donor to use, is another matter. If the donor accepts the two tickets as being a premium or benefit for a specific donation they are making, then you must apprise them that their say, $250 donation, has $50 of that money being in the form of “goods” they received for their donation. But, if the tickets are merely given with no such explicit attachment to a donation, the recipient just goes ahead and uses the tickets with no accounting problem.
Countless times, our Orchestra patrons gave us tickets when they could not attend concerts. They declared what they were allowed for tax purposes on their own. We said thanks in the way I describe in the article and in this note.
We gave the tickets to donors and prospects, mostly outright as courtesy and cultivation gestures, with no accounting responsibility at all on the recipients. But, if we offered those tickets as a premium for a donation, as described above, then we needed to tell them net amount we could declare as their true cash contribution—deducting the “market value” of the tickets they received for their donation.
if we receive tickets as a donoation and then turn around and give them to a donor to use, how woudl this be lcassified? The donor is requesting a receipt. What we provide adn how woudl this be considered?
This has been very helpful.
Thank you!
Hello Aga: Thank you. I am pleased that the article is useful. The suggestions there will apply in the same way in your situation. The only, and the big, difference, is if your Fiscal Sponsor approves and accepts this particular In-Kind donation. I have no reason to think one way or the other, but it is of course up to them since they carry the non-profit certification.
The donating company must follow the rules of the IRS in how that company declares the value of the donation, and you know that is something you should not officially do, but as I cite in the article, you simply acknowledge in detail the In-Kind donation, and symbolically say thanks for saving you what it would have cost otherwise to pay rent.
But, there is much more to such donations of office space, and that is why the Fiscal Sponsor must pass judgment if they will accept the In-Kind as a “passthrough donation to their non-profit status.
You must think about the building owner’s insurance responsibility—and especially yours—regarding accidents to your staff, your visitors, and damage to your own installed furnishings and other property. Too, security to protect people and property—yours and theirs—many need to be considered. And, because of the way the building is designed and how other tenants operate, must your regular business hours and your special schedule of operation be the same as theirs? You need to know that.
Will heat and electricity be provided, or will you be expected to pay some sort of estimated expense relative to the space you occupy? Will those utilities’ costs be fixed by meter to the area you use, or does the heat, water, electricity, etc., function overall to all tenants? How will that expense be shared? How much will it cost in any event, and can you afford it?
Your Fiscal Sponsor no doubt will have much to say regarding those answers.
Equally important, is that the donated space be located in an area best suited to the convenience and access of those whom you serve, your staff, and your visitors. Will there be parking accommodations and will there be a charge for parking?
I believe that the many explicit conditions, procedures, and the inevitable surprises, good and bad, surrounding donated office space can be best addressed when you have the opportunity to personally meet to talk about the possibility with the people considering the donation and to have an opportunity to personally and thoroughly inspect the facility to ask questions in the company of someone from your Fiscal Sponsor.
Of course, one of the biggest issues to resolve, is to have a clear and binding understanding regarding when you intend to vacate, or when you are required to vacate—with protection in between so that you are not evicted.
Great article! Very informative.
I have a question about donating office space to non for profits. I work for a non for profit and a company wants to donate office space for our use. Although we are registered as a non for profit, we do not have 501 c 3 status, we do however, have a fiscal sponsor. Is it still possible for the company to donate the office space and write it off as a tax exemption?
Thanks,
Aga
Amy: A few comments following down the lines of your note:
Apply, as appropriate, the suggestions from my article to each In-Kind donation which has a “what-it-would-have-cost-retail” amount, and which saved you from paying for it, if that amount fits into any of your regular donation levels, the ones you promote and publicize say, in your Annual Report, or other such listings of donors.
Or, you could have a separate GIK listing of those of value high enough to publicize the names of the donors. Those not wanting their names listed, and those giving very small In-Kind gifts, could be cited at the bottom of the listing as, for example, “And forty-eight other generous donors of In-Kind goods to (organization.”)
Be sure to list publicly the types of items you do want to receive as In-Kind donations. List the items you have received, along with a summary, perhaps, of the total number of such donors for the year to date, and the grand total estimate of what they all gave in terms of the retail cost, plus the important point again regarding how, because of their generosity, you did not need to buy such items, thus the money saved, was more you could spend on fulfilling your mission.
Don’t let the “not interested” statements from your In-Kind donors still keep you from sending a simple thank you. I will wager they mean that no acknowledgment is necessary from what they see as the difference between giving cash and giving goods. You should still send them a thank you. Don’t ask. Do it.
A final suggestion: Use your good judgment to know just how much you should solicit and manage the GIK process. You don’t want potential cash donors to even begin to think that a good deal of your needs are met by In-Kind donations. The effort should not in any way distract from the Annual Fund Campaign’s quest for cash to meet the mission’s needs, and to pay the bills.
What recommendations do you have for a nonprofit that receives a large volume of small GIK donations? We receive a lot of donations from visitors in the form of a 12 pk of paper towels, a laundry basket, old towels, birdseed, etc. These items by themselves are nominal, but in total, are a sufficient amount of supplies that we did not have to purchase. We don’t always see the donor, and most are not interested in an acknowledgement. Conversely, it would be great for us to show the actual cost of running our programs, by showing the donation revenue and corresponding expense of these items.
Mindy: Absolutely, you can thoughtfully mention, in the way I suggested, those amounts paid by donors for the things they bought and paid for and which they subsequently gave to you. The lead off thanks in the letter for the (detailed description) item donated, then sets the stage in a clear, safe, and legal manner to recognize the dollar value to you, and which you would credit publicly.
The software and decorations are still In-Kind donations, however, and you cannot make references to the amounts as being an official valuation by your organization for the reasons I cited in my article above.
If the receipts are going to do anyone any good, they will be only for the donors, who will need to work out any possible tax break with their tax preparers and the IRS.
The only reason I always liked to let the In-Kind donors know “what it would have cost us retail,” but for their generosity, was to show appreciation. Nothing more. And, with the necessary description in the letter of the In-Kind product or service donation preceding the recognition amount, there is no question that an article, product, or service was donated, and that the In-kind gift donation regulations will apply.
Next time, do consider seeking an agreement with a donor where you buy and pay for the article in need, and then the donor sends a check to your organization in to cover that purchase. Her or his cash donation is then fully tax-deductible. And you have the item paid for.
Your sample acknowledgement letter says “we likely would have had to expend $____”. What about when a donor buys something for you (a piece of software in one case, decorations in another) that was needed and furnishes the receipt. We know exactly the cost – not an estimate. Can we put that amount in our letter? Can the donor not count this as a charitable deduction?
Hello Vickie: Dave’s immediate follow-up helped clarify your situation. Simply put, the IRS will only recognize any donation as it is acknowledged by an accredited non-profit.
Of course if cash, you specify the amount. But, as you know, with in-kind contributions, you should only cite what was given. The actual value of the in-kind is totally left up to the donor to reconcile with the IRS.
Non-profits cannot and should not provide official, or even official-looking, valuations of in-kind items or services. Maybe you did read my article on this topic. If so, just follow the suggestions. If not, I invite you to read how you can recognize in-kind donations to the satisfaction of the donors.
Thank you very much!
I don’t think our parents association is set up as a 501c3 (in the US) organization but we are. I think I know how to do it. I will write a tax deduble letter to the parent since she is asking a receipt for her donation. I don’t know why we never make it clear to parents that they can ask for In-kind donation receipt through school when they donated stuff to parent association for this gifts basket campaign for faculty/staff. Thank you. Vickie
Dear Mr. Poderis,
Thank you for the article. It is very helpful.
I have a question about “In-kind” gift to non-profit origination.
I work for a private school and our parents association run a faculty gift baskets every year. The gifts from a lot of parents to parent association then to all the faculty. The gifts included stuff and cash or gift cards. We never received parents to ask for a “In-Kind” donation receipt. But this year one of parent who ask for it. Do we need to issue a receipt for her or should parent association should do it? Can parent association provide “In-Kind” donation receipt?
Thank you very much and hope it did not spend too much of your time.
Hope everything goes well in your life.
Thanks. Vickie
Vickie,
Tony is away on vacation through March. I’m sure he will have something to say when he gets back. Meanwhile, my thoughts: The in-kind receipt needs to be issued by an organization legally able to accept charitable gifts. That might be your parents association if it is set up as a 501c3 (in the US) organization. If not, the receipt will need to come from your school–once again assuming it is a legally constituted nonprofit. The valuation of in-kind gifts is tricky. In general, they have a value of only the actual expense incurred by the donor in acquiring or providing them. Not their market value. Let’s say an automobile dealer gives you a new car for an auction item. The dealer can only claim the value of the gift to be the cost of the auto to him. Not the market value of the car. In this example, your school should not issue a receipt for the market value. Hope this helps.