Avoid compliance pitfalls and build trust by properly valuing and documenting donated goods and services 

Key Takeaways:
  • In-kind donations must be valued at fair market value and recorded as revenue to stay compliant and avoid reporting issues.
  • Clear documentation for donated goods, services and space builds trust with donors and supports audit readiness.
  • Consistent tracking of in-kind contributions shows the true cost of operations and the full scope of community support.

 

Nonprofits often depend on in-kind donations to keep their programs running and their budgets in check. These gifts can come in many forms, such as boxes of food, donated office space, clothing or other non-cash donations. They make a real difference but can also raise difficult questions. How do you record them? What are they worth? And how do they affect your financial statements and annual Form 990? 

Many organizations find that the accounting side of in-kind donations is more complicated than expected. Valuing these contributions incorrectly or failing to record them altogether can create reporting issues and make financial statements less reliable. Understanding how to properly account for donated goods, services and space is key to staying compliant and maintaining transparency with donors, auditors and the public. 

How to Value & Record In-Kind Donations 

Every in-kind contribution represents real economic value and must be recorded as revenue on your books. The valuation method depends on the type of donation – goods, services or building space. Each requires careful consideration to ensure your records reflect fair market value and meet nonprofit accounting standards. 

  • Goods – When your organization receives donated goods such as food, toiletries or clothing, the value should reflect what it would cost to purchase those items at retail price. That estimated cost becomes the amount recorded as in-kind revenue. For example, if your nonprofit receives 24 cans of vegetables and the cost per can at a grocery store is $1, you should record $24 of in-kind revenue. Clothing donations should be valued in a similar way but adjusted for the clothing’s condition. New items can be valued at or near full price, while used items should be valued lower. Recording goods this way ensures financial statements show the true extent of community support and keeps your organization aligned with IRS and GAAP standards. 
  • Services – In-kind services can include administrative help, IT security, consulting or professional expertise. If the donor can provide a typical rate they would charge a client, that amount should be used as the value of the service. If not, the organization should research average market rates for similar services. Documenting how you determined the value, such as quotes, online research or professional estimates, helps ensure compliance and transparency during audits or board reviews. 
  • Building Space – When a property owner allows a nonprofit to use space rent-free, the organization should record this as in-kind rent revenue. If the owner normally rents out the property, use that rate to value the donation. For example, if an organization receives a donation of warehouse space that is normally rented out for $2,000 per month, the organization will record $2,000 of in-kind rent revenue for each month that it uses the space or pro-rate the amount for a partial month’s use. If the space is not typically rented, find comparable properties to estimate fair market value. For example, an organization was allowed to use a 3,000 square foot warehouse in an industrial area, but the owner of the property was unable to estimate a rental price. The nonprofit organization researched the rental price of warehouses in a similar area and found that a 4,000 square foot warehouse was available to rent for $5,000 per month. By taking the monthly rental price by the square foot of the warehouse, the price per square foot works out to be $1.25 per month. The organization can estimate that the value of the donated warehouse space would be $3,750 per month, based on 3,000 square feet at $1.25 per month. Recording this accurately helps reflect the full cost of operations and demonstrates to donors and funders how community partnerships make your work possible. 

Tracking & Reporting In-Kind Donations on Form 990 

All in-kind donations, whether goods, services or space, should be tracked by category throughout the year and reported on the annual Form 990. Each entry should include the donor’s name, a description of the contribution and how the value was determined. 

Strong documentation supports audit readiness, builds donor trust and helps leadership make better financial decisions. 

Questions? 

Managing in-kind donations requires more than simple bookkeeping. It calls for an understanding of nonprofit reporting standards, IRS requirements and the nuances of valuing non-cash contributions. Working with experienced nonprofit accountants can help your organization build stronger financial practices, improve audit readiness and maintain transparency with donors and grantors. 

A trusted accounting partner can help you design internal processes for tracking, valuing and reporting in-kind donations so your financial statements tell the complete story of your organization’s impact. 

Contact an Adams Brown advisor to learn how our nonprofit accounting services can help your organization record, value and report in-kind donations with confidence.