If you’ve worked with a nonprofit before, you’re probably familiar with reporting monetary donations and financial information. However, there is another type of donation that nonprofits may need to report to the IRS, In-kind donations.
In-kind donations are non-monetary contributions to a nonprofit organization. Nonprofits typically focus their efforts on gaining monetary contributions despite the fact that in-kind donations can be equally as beneficial. Keep reading for a guide to in-kind donations and how to report them as a nonprofit.
As stated above, in-kind donations are non-monetary contributions to nonprofits or charities. They generally come in two different forms
- Services such as accounting, web design, or marketing
- Goods such as pet food, canned goods, hygienic products, or cleaning supplies
While offering certain services for nonprofits is considered an in-kind donation, it’s important to note that some forms of services cannot be counted as a donation. This mainly applies to volunteer work, which could include event set-up or event coordination. In-kind donations of services are typically restricted to more specialized skills such as those mentioned above.
Should I report in-kind donations?
It is important to determine if your organization is required to report in-kind donations, which depend on
- The state in which your organization operates
- The value of the donation
- Requirements of lenders, grantors, or key stakeholders
The IRS requires nonprofits to provide tax receipts for donations of $250 or more. You can provide a receipt with a donation description. Keeping records of all forms of donations may also be helpful when managing finances.
Reporting requirements on the state level may vary from state to state. Some states may mandate reporting in-kind donations, while some may not need any details. You’ll need to clarify the requirements of the state your organization operates in.
While you may not be required to report these kinds of donations, you might want to anyway. Donors will be grateful for your appreciation and may even be more likely to donate again or understand your organization’s purpose.
How should I report in-kind donations?
In order to report in-kind donations, you’ll first need to determine the fair market value (FMV) of the donation. The FMV is the price that a product would sell for on the open market between a willing and informed buyer and seller. Basically, the price of the donation.
This can be a little complicated when it comes to some in-kind donations. The price of physical donations can be determined by looking at the market price of the item, but the value of provided services is largely subjective.
You can determine the value of in-kind donations by learning how other nonprofits value similar donations and deciding the overall value of the donation to your organization.
Reporting in-kind donations with your 990 return
In-kind donations are included in your organization’s gross receipts. This means they can impact the 990 return that you file and what information is recorded on it.
When you’re ready to file your 990 return, it’s important to make sure you are filing the appropriate form with accurate information. For example, if your organization has gross receipts between $50,000 and $200,000 and assets less than $500,000, you are required to file Form 990-EZ. If your gross receipts are above $200,000, you are required to file Form 990. However, if your organization is categorized as a Private Foundation, you should file Form 990-PF regardless of gross receipts.
Furthermore, the IRS mandates that all 990 returns be filed electronically. Therefore, you’ll have to choose an IRS-authorized e-file provider that meets your filing needs. Some providers offer additional features that may ease your filing process, such as the inclusion of required Schedules or guides to the filing.
Understanding how to approach and report in-kind donations is important for every nonprofit organization. Recording and acknowledging these donations can help you stay on top of your organization’s contributions and organize your finances.
Olivia Massengale is a content writer for Tax 990, an IRS-authorized 990 e-file provider. She enjoys creating informative content that helps clients understand and successfully e-file nonprofit tax returns.
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