What Is an In-Kind Donation 501C3?

An in-kind donation is a non-cash donation to a 501(c)(3) charity. If you ever want to make a donation, you can make two types of contributions to a 501(c)(3) charity: cash donations or in-kind donations. A cash donation is a transfer of funds to an organization, and an in-kind contribution includes tangible and intangible goods and services.

Both donors and charities should understand what constitutes in-kind contributions, how to value them, and how taxes impact them. So, if you don’t have cash on hand, here's what you should know about in-kind donations to support 501(c)(3) charities.

The different types of in-kind donations

There are two types of in-kind donations, which include both goods and services.

Before making an in-kind donation, you must decide what type of donation would best match the charity’s mission. For example, an appropriate in-kind donation to a charitable education program may include goods such as school supplies, computers, and office equipment. However, you may want to provide a service like donating meeting space for students and staff members, transportation, or administrative services. 

You can also donate your time and expertise by providing legal, coaching, or accounting services. Finally, you can give cash equivalents, such as stocks and bonds. Here are some examples of gifts that constitute in-kind contributions.

Tangible goods

• Computers
• Furniture
• Clothing
• Food
• Baby diapers and formula
• School supplies 
• Pet supplies
• Medical supplies
• Toys
• Vehicles

Intangible goods

• Copyright donations
• Patent donations
• Intellectual property 

Services

• Legal assistance
• Accounting services
• Transportation
• Administrative services
• Coaching services
• Professional services
• Volunteer services
• Pro bono services
• Space (for meetings and events)

How to calculate the value of in-kind donations

When a nonprofit organization receives an in-kind contribution, the charity records the gift as revenue. To determine the amount of revenue, the charity must value the in-kind contribution at its fair-market value on the date of the donation.

Step 1: Get an appraisal

There are multiple ways to calculate the value of your in-kind donated goods. Depending on the donated item, it may be appropriate to have it appraised if the item is perceived as high value. For instance, the value of jewelry donations would be best calculated by a professional jewelry appraiser, but what if the item is not considered high value? 

Step 2: Estimate total value

In some cases, donations such as used clothing, toys, and furniture may receive self-reported calculations. This means that the donor can provide an estimate of the value of their donated goods. Additionally, you can conduct a quick search on the internet to determine the current market value of the donated item. Websites like Google, Amazon, or eBay for vintage items are great places to search for identical and comparable items currently available for sale. 

Step 3: Provide receipts

If the donor has proof of a recent purchase, such as an invoice or receipt, you can skip the guesswork and use the purchase amount as the estimated value. Keep in mind that the value of goods typically decreases over time, so get the date of purchase to accurately determine its worth. 

Step 4: Estimate value of services

For services, you may use a salary survey or a competitor comparison to determine the fair market value of the provided service. Sometimes, it may be easier to use an hourly rate based on the ongoing employee wages for the same duties performed within the organization. However, if the organization is volunteer only, comparable labor wages within the same location may be used to determine the appropriate rate. 

For example, if a fitness trainer volunteers two hours of training services for a senior citizen organization, you can look up the market value for fitness training services within the same geographic location. Once the charity decides upon a fair market value methodology, that methodology should be used and applied consistently to avoid confusion. 

How are in-kind donations taxed?

For individuals making in-kind contributions, donors can take a tax deduction for the fair market value of the donation. Donors cannot deduct for any time or services contributed to a 501(c)(3) organization. Instead, the donor can only deduct the cost of any out-of-pocket expenses for which the donor has receipts.

Additionally, the charity cannot provide the donor with the fair market value of the in-kind donation. Determining the value of the donation will be the responsibility of the donor; however, it is the organization's responsibility to provide written acknowledgment of donations worth $250 or more. This is an Internal Revenue Service (IRS) requirement for donors to receive tax deductions.

How to properly accept in-kind donations

To receive in-kind donations, charities should establish a process for accepting, documenting, and recognizing such contributions. Charities should acknowledge in-kind gifts, along with a description and the value of the donation, by submitting an acknowledgment of the in-kind gift to the donor.

Step 1: Establish a gift acceptance policy

To start, charities should establish a gift acceptance policy to minimize unwanted donations that are not in alignment with the organization’s mission. The gift acceptance policy can also be used as a guide for donors to know exactly what or how to donate to the charity. For instance, if you decide to organize a toy drive, you may or may not want used donations, and more than likely, you don’t want pet supplies delivered to your door. 

By creating a gift acceptance policy, you can eliminate the guesswork for donors and provide a clear outline of the organization’s expectations. To promote the gift acceptance policy, organizations can use social media, marketing, and partner websites to make their policy easily accessible to potential donors.

Step 2: Draft a written agreement

Charities can draft a written agreement for large or complex in-kind donations, such as providing building supplies after a natural disaster. Gift agreements outline the agreement between the charity and the donor for the provision of goods or services. Although this is not a legal document, this agreement includes the details of the parties' understanding regarding the donation, such as the description of and the intended purpose of the gift.

Step 3: Create a standard donation form

Additionally, a charity can create an in-kind donation form that donors can complete. Donors should record a description of the gift, the date the charity received the gift, and the estimated fair value of the donation.

Whether you're making an in-kind contribution or receiving an in-kind contribution as a 501(c)(3) organization, you may have questions about the types and values of in-kind donations. You may also have questions about the taxability of such contributions. To receive further guidance on in-kind donations, you should consult with an attorney or use LegalZoom’s attorney services for assistance.

FAQs 

How do you start a 501(c)(3)?

After you have followed the ordinary course of business to start a nonprofit organization, such as finding a need and determining how you will fulfill it, you must decide on a business structure that will best support your mission. Additionally, you must name your nonprofit and complete some of the following:

• Choose a registered agent
• File articles of organization with your Secretary of State
• Establish the board of directors
• Obtain an employer identification number (EIN)
• Get licenses 
• Apply for tax-exempt status 

What happens if you improperly record an in-kind donation?

Improper recording can lead to several penalties, such as costly fines from an IRS tax audit, a tainted reputation, and loss of trust from donors.

Can you refuse an in-kind donation?

Absolutely! The organization’s gift acceptance policy provides an overview of acceptable and unacceptable donations. To avoid an awkward rejection, you can refer the potential donor to the policy as a polite way to refuse the donation.

Can you make an in-kind donation to a presidential election campaign fund?

Yes! Individuals and entities, such as a limited liability company (LLC), can contribute an in-kind donation to support a candidate’s campaign and federal election activity (FEA). Unlike an independent Political Action Committee (PAC), there are limits to how much a political committee can receive. Similar to a cash offering, in accordance with the Code of Federal Regulations (11 CFR), the value of an in-kind donation is based on its “usual and normal charge.” 

This means that your in-kind donation will be calculated and treated like a cash donation to honor set contribution limits.

Reporting on candidate forms is mandatory. This means the committee must record and report all in-kind donations. For example, if a committee receives donations from “Benjamin Franklin” to cover printing and mailing expenses, then the contributor's name, Benjamin Franklin, must be included in the report.

If you are interested in LegalZoom’s advisory opinion (AO) and would like further guidance concerning political committees and in-kind donations, we can provide legal support from our network of experienced attorneys.

Can a corporation make a donation to a political committee?

Not exactly. Corporations cannot donate to a campaign. However, corporations can use funding from a separate segregated fund (SSF) to make donations. The campaign will then be responsible for submitting a net outstanding campaign obligations (NOCO) statement after receiving federal matching funds.