In-Kind Donations: Complete Guide for Nonprofits

In-kind donations refer to non-cash contributions of goods or services that a donor gives to an organization instead of money. These can include items like food, clothing, computers, or even professional services such as legal, medical, or accounting assistance. In accounting terms, in-kind gifts are recognized as contributions at their fair market value and must be reported as revenue and expenses in financial statements if they are tangible and clearly measurable. In-kind donations help organizations reduce expenses and extend their budget by receiving essential resources they would otherwise need to purchase.

What is an In-Kind Donation?

An in-kind donation is a voluntary contribution of goods or services, rather than monetary support, given to a nonprofit or charitable organization. For example, a parishioner donating a sound system to the church or a lawyer offering pro bono legal advice are both considered in-kind donations. These contributions are valued based on their fair market value and are often tax-deductible for the donor. Organizations must track and report these donations accurately for transparency, financial reporting, and audit purposes.

What is the importance of In-Kind Donations in Parishes?

In-kind donations are critically important in parishes because they help offset operational and ministry costs, allowing the church to focus its financial resources on mission-driven activities. These gifts often come from members of the congregation or local businesses and can include things like construction materials, office equipment, musical instruments, or volunteer services. By leveraging donated goods and expertise, parishes can enhance their worship environment, outreach programs, and maintenance work without additional financial burden, strengthening their connection with the community and encouraging deeper engagement among parishioners.

How do Parishes use In-Kind Donations?

Parishes use in-kind donations to support a wide range of needs such as facility maintenance, ministry programs, outreach events, and worship services. For example, donated food can be used in feeding ministries, free legal services might assist parishioners in need, and donated furniture or electronics can improve office or worship space functionality. Churches often recognize these gifts in bulletins, stewardship reports, or donor appreciation events, as they play a vital role in supplementing limited budgets while expanding the impact of parish activities and charitable work.

What are the Different Types of In-Kind Donations?

The different types of in-kind donations are listed below.

• Donated Goods: Tangible items like food, clothing, furniture, books, or office supplies.
• Donated Services: Professional or skilled services offered without charge (e.g., legal, medical, design work).
• Donated Space: Use of venues, meeting rooms, or office space provided rent-free.
• Donated Equipment or Technology: Computers, software licenses, AV equipment, etc.
• Volunteer Time (when professional services): Only if the service would typically be paid for and is specialized.
• Donated Advertising or Media Coverage: Free radio, print, or digital promotion.

Can In-Kind Donations be cash?

No, in-kind donations cannot be cash because by definition, they involve the contribution of non-cash assets or services. Cash donations are monetary gifts and are classified separately in accounting and tax reporting. In-kind donations must be tangible goods or measurable services. However, donated gift cards, while resembling cash, are usually treated as in-kind donations since they represent the purchase of goods rather than a direct cash transfer. Understanding this distinction is important for financial reporting and IRS compliance.

How to Track In-Kind Donations?

To track in-kind donations, follow the steps below.

1. Clearly define what in-kind donations are acceptable and how they'll be valued.
2. Document donor name, description of donation, estimated fair market value, date received, and intended use.
3. Log the donation in nonprofit accounting software (like ParishSOFT) as both revenue and corresponding expense.
4. Send a written acknowledgment to the donor describing the gift (without stating value) for tax purposes.
5. Keep receipts, photos, or appraisals, especially for high-value or unique items.
6. Regularly produce reports for audits and board reviews to maintain transparency and compliance.

What are the IRS Rules for In-Kind Donations?

The IRS requires that in-kind donations be recorded at their fair market value and appropriately acknowledged by the receiving nonprofit. While organizations must document the donation and describe the item or service received, they should not assign or state the value in donor acknowledgment letters; it is the donor's responsibility to determine the gift's value for tax deduction purposes. For non-cash gifts exceeding $500, donors must complete IRS Form 8283, and if the value exceeds $5,000, a qualified appraisal is required. Nonprofits must also report significant in-kind contributions on Form 990, ensuring accurate and transparent financial reporting.

What are the Benefits of In-Kind Donations?

The benefits of in-kind donations are listed below.

• Reduce Operating Costs: In-kind donations of goods or services—such as office supplies, maintenance work, or professional expertise—eliminate expenses the parish would otherwise incur. This allows cash budgets to be redirected toward core ministries and outreach programs.
• Free Up Cash Flow: By receiving necessary items or services as donations, parishes preserve their cash reserves for unexpected expenses or strategic initiatives. Consistent in-kind support stabilizes finances and improves overall liquidity.
• Increase Donor Engagement: Offering opportunities for in-kind giving appeals to donors who may not be able to contribute cash but have valuable resources or skills to share. This broader participation deepens donor relationships and builds a more engaged community.
• Support Specialized Needs: Professional or technical in-kind contributions—such as legal advice, IT support, or construction labor—provide expertise that is often cost‑prohibitive. These targeted gifts enhance program quality and operational capability.
• Strengthen Community Partnerships: In-kind donations frequently come from local businesses and organizations, fostering partnerships beyond the congregation. These collaborations increase the parish's visibility, community goodwill, and potential for ongoing support.

Are there Downsides to In-Kind Donations?

While in-kind donations offer many advantages, they can also pose challenges such as mismatched or unusable items, valuation difficulties, and storage or maintenance costs. Some donations may require time and resources to process, or come with restrictions that complicate use. Additionally, improper valuation or recordkeeping may affect financial reporting or IRS compliance, making it essential to have a clear policy and accurate tracking procedures in place.

What are the Other Types of Donations besides In-Kind Donations?

Besides in-kind donations, nonprofits and parishes commonly receive cash donations, recurring gifts, planned giving (legacy gifts), matching gifts, stock donations, and sponsorships. Cash donations are the most flexible and directly support budget needs. Recurring donations offer reliable funding, while planned giving involves bequests or estate gifts. Matching gifts are corporate programs that double employee contributions, and stock or asset donations provide tax-efficient giving options. Each type of donation supports a different aspect of fundraising and financial stability, allowing organizations to diversify revenue streams and build long-term sustainability.

How do In-Kind Donations differ from Sponsorship?

In-kind donations are non-cash contributions of goods or services given to support the organization's mission without expectation of commercial benefit. Sponsorships, on the other hand, are commercial arrangements in which a business provides money, products, or services in exchange for marketing benefits such as logo placement or public recognition. While both offer support, in-kind donations are considered charitable gifts, whereas sponsorships may be treated as business transactions with taxable implications, requiring different accounting and acknowledgment practices.

How can ParishSOFT handle In-Kind Donations for Parishes?

ParishSOFT provides integrated donation tracking tools that allow parishes to record, manage, and report in-kind donations accurately alongside monetary gifts. Through its giving and accounting modules, ParishSOFT enables users to input donation details such as donor name, item description, estimated fair market value, and designated purpose. These records can be included in contribution statements and financial reports for transparency and donor acknowledgment. By centralizing donation management within a secure, cloud-based system, ParishSOFT ensures compliance with IRS reporting standards and simplifies stewardship communication with parishioners.