In-Kind ContributionsPosted on February 6th, 2018
In-kind contributions are services or goods that are donated to your organization. They have a real monetary value, but you must handle them differently when recording them in your accounting system and acknowledging your donors.
When you receive an in-kind donation of services, record it in your accounting system as a net zero transaction; the in-kind contribution is recorded as revenue with a corresponding expense for the service provided.
For example, let’s say that an attorney on your board spent ten hours providing you with legal advice. This is a real expense that your organization would have paid for if you didn’t have that board member. It is important to record these contributions of goods or services at fair market value. However, when you send the donor an acknowledgement letter, you should describe the services they performed for you without assigning a dollar value to those services—the real market value of their services is for your organization’s records only. The IRS does not allow individuals to deduct the value of their time as a charitable contribution, but it does allow them to deduct the actual expenses incurred while donating their time (e.g., mileage, office supplies, etc.).
Donated goods can be treated a little differently depending on the nature of the goods.
If you receive some consumables that you would normally purchase and use in your ordinary business operations, enter a net zero transaction that records the revenue and corresponding expense. If the donation is a capital asset, then record the revenue and, instead of recording a corresponding expense, record the asset and start depreciating it. You should record the donated items at fair market value. Again, when preparing the acknowledgement letter for the donor, describe the item(s) donated to you without assigning a dollar value to the items. It is the responsibility of your donor to determine and report the value of their donation on their personal returns. We’ll cover their responsibilities in another post.