This blog post from the nonprofit legal experts at Charitable Allies is part of their longer series on donations. For more information on donations, see their in-depth post on in-kind donations and their post on how to write a donation acknowledgment.
What counts as an in-kind donation? How do you write an acknowledgment for an in-kind donation? Very important questions for nonprofits to understand as part of their broader fundraising compliance needs.
Generally speaking, an in-kind donation is when a donor donates a non-monetary donation. It’s important to note that donated time (volunteering) is not tax-deductible, but if the volunteer provided goods to help complete the volunteer job, those things would be tax-deductible. For example, if a volunteer offers to re-paint a nonprofit’s facility, the time is not deductible, but the paint and other supplies are.
In-kind donations generally fall into one of three categories:
Direct payment of a bill is the easiest type of in-kind donation to verify and acknowledge. An organization should confirm with the vendor that the invoice was paid (and not somehow discounted and then paid) and receive written confirmation from the vendor. Once confirmed, the charity may provide a written donor acknowledgment.
Example: You ordered new laptops for the nonprofit’s office. A donor paid the invoice from the laptop provider. Your nonprofit would then send an acknowledgment to the donor for their in-kind donation. (See examples of those below.)
Donations of goods are more a little more complicated. The charity must still provide the written acknowledgment to the donor, but because there was no bill valuing the item(s), the responsibility is on the donor to value the donation.
If the value of the in-kind donation is believed to be more than $5,000, the value is generally obtained from an IRS-qualified appraisal. If the charity sells or transfers the goods within three years of receiving, the charity must complete IRS Form 8283 and file with the IRS. There’s even a special set of procedures if a donor donates a car, boat, or other vehicle, which you can read about in A Charity’s Guide to Vehicle Donation from the IRS.
Donations of services are the most complicated. Generally, personal services are not deductible. However, the expenses associated with providing such services are.
For example, if a business owner authorizes employees to use company time to provide free services to a nonprofit, then payroll and associated costs are deductible, in addition to expenses directly related to the service. It is important for the donor to keep detailed records, such as the parking and meal expenses. Just remember that the time itself is not deductible. But of course, the services provided are still worth celebrating and thanking the donor for!
You can choose to send donation acknowledgments on an annual basis as a summary, or one for each in-kind donation you receive. You can read more in-depth on writing donation acknowledgments for monetary donations here.
On a donation acknowledgment for an in-kind donation, you should include the name of the nonprofit, your EIN number, the date the donation was received (or the service was performed), and the value of the in-kind donation. If the donor does not provide a valuation, use your best good faith estimate and include a disclaimer that explains that it is the donor’s income tax responsibility to determine deductibility and/or obtain valuation, and that the dollar figure provided above is for donor recognition purposes only. This kind of disclaimer is wise to include in any in-kind donation receipt of goods or services.
Here’s an example of a donation acknowledgment for an in-kind donation of goods that might be used by churches or other religious nonprofits:
“Thank you for your contribution of [detailed description of goods that were donated] that [your organization’s name] received on [date]. Were it not for your generous donation, we would have had to spend $[value of item] to procure such an item*. No substantial goods or services were provided to you (other than intangible religious benefits,) in exchange for your contribution.
*Note: It is the donor’s income tax responsibility to determine deductibility and/or obtain valuation, and that the dollar figure provided above is for donor recognition purposes only.
In-kind donations of services can be acknowledged in a similar way, except that it should not contain a dollar amount for the costs or expenses. Instead, it should provide a description of the services and the year of the services. Though the time spent providing services is not deductible, you still want to thank them for volunteering their time and effort with your nonprofit!