In-kind contributions are donations of goods and certain professional services rather than monetary donations (think clothing and household items to Goodwill). For Non-Profit Organizations (NPO) of all kinds (both exempt and non exempt from federal income tax), recording in-kind contributions provides a means of recognizing and valuing contributed services and property. Recording In-kind contributions, in addition to monetary, is a more accurate reflection of the community support and performance of the NPO.
In-kind contributions are recorded by the NPO at the fair market value of the item or service at the time of the donation. Record-able transactions must have a verifiable fair market value. According to Generally Accepted Accounting Principles (GAAP), donated professional services are recorded only if the service provided requires specialized skills and is provided by someone with those skills, and the service would otherwise have been purchased (for example – tax and legal service, building a new shed). The actual entry is typically a debit to an in-kind expense account, and a credit to an in-kind revenue account.
The NPO should provide receipts for in-kind contributions, at the time of the donation, with the following: the name of the donor, date paid, name and address of NFP, a description of the property (a good faith estimate of the value is not necessary and actually the donor’s responsibility). Also, the receipt should include a statement indicating whether or not any goods or services were provided in exchange for the contribution.
A few additions points – it’s important to note, while donated services (even professional services) can and should be recorded by the NPO according to GAAP, they are rarely, if ever, deductible to the donor. Also, donations (monetary or in-kind) to a NPO that are designated for a specific individual are not deductible to the donor. Also, since receipts are typically provided at the time of the donation, year-end statements are not necessary but many NPO provide a recap for the benefit of their donors. Hand written thank you letters are also common, but are not always sufficient for tax receipt purposes.
There are many other situations and additional guidelines that may apply, so be sure to check with your CPA or a Tax Attorney for specific help.