Many non-profit organizations recognize that a community’s generosity is their lifeline. While cash is a typical form of donation, the other is in-kind donations. These include goods and services provided to the organization rather than money. Such contributions play a significant role in a nonprofit’s mission and its execution. This includes donated food, professional services, personal supplies, and more. Although significant, in-kind donations require proper recording, valuation, and reporting, which presents a challenge for many non-profit organizations.
This guide will help you track in-kind donations for your non-profit. You will have the ability to provide more transparency, report donations accurately, and draw in future support. It’s not just about compliance, but rather implementing a strategy that allows people to view your organization in a positive light. Let’s go over the details of what you need to do.
What Are In-Kind Donations?
In-kind donations are goods or services that have a certain usage. What counts as this type of donation? Let’s take a look at the following:
- Goods: Furniture, food, clothing, computers, essential equipment, etc.
- Services: Graphic design, consulting, event planning, pro bono legal advice, teaching job skills to others via classes, etc.
- Use of property and facilities: For the use of equipment or meeting spaces.
Such donations will need consideration regarding valuation, accounting, and reporting. You will need to put together a system that makes it easy to handle everything accordingly. Reporting the issue will ensure transparency on your part.
Why Tracking In-Kind Donations Separately Matters?
Tracking in-kind donations separately keeps things simple. When the time comes for audits or financial disclosures, you will understand why this and nonprofit donation reporting in particular carries such importance. Here are other reasons why it matters:
Financial transparency and credibility
Accurate and comprehensive financial statements carry significant importance. Donors, grantors, and auditors alike need to review the in-kind donation reports you have prepared. It needs to create a clear picture of everything your organization receives other than cash. If you fail to report such contributions, your non-profit may not be viewed as trustworthy. This means future fundraising efforts face particular difficulties. Eventually, such significant changes will be made to help regain the trust and repair the reputation of your organization even if it takes a lengthy period.
Improved decision making
By reporting in-kind donations, you sharpen your strategic decision-making abilities. For example, you can decide whether a budget for food is worthwhile if you consistently receive catering donations for the events you plan. Tracking such trends reveals gaps that exist, like a need that in-kind donations can fulfill. A nonprofit leader decides to allocate their resources more effectively by identifying cost savings and efficiently planning for future operations responsibly.
Compliance with Accounting Standards
In-kind donation accounting is required to follow Generally Accepted Accounting Principles (GAAP). The FASB (Financial Accounting Standards Board) requires nonprofits to recognize and value in-kind donations in their financial statements. Recording the contributions separately ensures compliance with IRS and GAAP requirements, which are necessary to maintain your 501(c)(3) status. However, it’s always best to address compliance issues with a tax professional if you encounter any. This will save you lots of headaches and scrutiny down the road.
How To Value In-Kind Donations
Valuing in-kind donations can be challenging. Yet, it will be necessary to ensure that each nonprofit’s donation reporting is accurate every time. How do you determine the valuation of each donation? Here are some ideas to consider:
- Goods: The value is based on the fair market price of the donated item at the time it was received. Eventually, market prices tend to change. Because of this, you’ll always need to double check before providing an accurate figure.
- Services: Services that utilize specialized skills, such as accounting or legal services, are recordable. Otherwise, these services are purchased outright. The services must be provided by individuals who hold the qualifications to offer them.
- Facilities: The rental market rate is a valuable reference point for valuing donated space or equipment usage. Like fair market prices on goods, rental market rates could eventually increase or decrease. Once again, this requires you to double check the price to ensure accuracy.
With proper valuation, it’s easier to provide a complete financial picture for your organisation. This is particularly useful for grant proposals, impact reports, and year-end summaries.
What Are The Best Practices For In-Kind Donation Tracking?
Nonprofit bookkeeping best practices are key for tracking in-kind donations accurately. Here are the following steps to make it easier for you:
Implement a clear tracking system
Choose a donation tracking software or accounting tool that allows categorization of in-kind donations easily. It must be separate from monetary contributions. The system must record:
- Donor information
- Type of donation (goods, services, facilities, etc.)
- Date received
- Usage and purpose
- Estimated fair market value at time of donation
Create an In-Kind Donation Policy
Set guidelines on what in-kind donations you’ll accept. Therefore, you need to implement a clear policy for staff and volunteers to ensure consistency and minimize potential confusion. In other words, delegate the task of responsible tracking to team members, allowing you to focus on other pressing organizational tasks.
Ensure Accurate Acknowledgements
Send detailed thank-you notes to donors. Be sure to include the description of the donation. In addition, avoid the dollar value of the donation as it violates IRS guidelines. If it involves services, you’ll want to consult with an accounting expert to ensure you are following compliance guidelines.
Enlist Assistance From A Professional Bookkeeping Partner
Accurate in-kind donation accounting has its challenges. Therefore, you will want to consider enlisting the help of a professional bookkeeper, particularly one who specializes in non-profit organizations. They will understand non-profit compliance and reporting. Additionally, they will streamline the process, allowing you to save time and reduce stress.
What Pitfalls To Avoid
Tracking in-kind donations can reveal common pitfalls that non-profit leaders often encounter. These include:
- Value overestimation: Even if it’s inadvertent, overvaluing the fair market value provides misleading information to stakeholders. It can also be a potential issue in the eyes of the IRS. Therefore, always double-check the value of everything that will be reported.
- Failure to distinguish between service and volunteer work: General volunteer hours, such as someone helping out at an event, are not recognized on financial statements, unless they meet IRS criteria. Additionally, speak with an IRS tax expert to see if you are unsure of what needs to be reported and what doesn’t.
- Ignoring documentation: Always collect donation receipts, service agreements, or proof of valuation. These support your records in the event of an audit. Eventually, it will serve you well in the long run when there are planned and unplanned audits.
Protecting yourself from these pitfalls will make a difference. Either your organization faces a loss of trust and financial difficulties due to a lack of donations. Or it is viewed as trustworthy, transparent, and constantly growing in terms of support. Of course, the latter is the obvious choice.
Trust The Bookkeeping Experts That Know Non-Profits
A non-profit organization doesn’t need to struggle with tracking in-kind donations. However, you can enlist professional help from a group that understands the intricacies of reporting. With a professional who handles the heavy lifting, you focus on the other priorities of your non-profit organization. To get started, contact The Quantify Group today, and we will answer any questions or concerns you might have about donation tracking.
