How do nonprofits handle in-kind donations in their books?
In-kind donations include donated goods, professional services, and use of facilities. The accounting treatment depends on what was donated and whether it meets the criteria for recognition on your books.
For donated goods like equipment, supplies, or auction items, you record the gift at fair market value on the date received. The entry hits both sides of your financials: you recognize contribution revenue and then record the corresponding expense or asset. If someone donates $3,000 worth of office furniture, your books show $3,000 in in-kind revenue and $3,000 in furniture or equipment. This keeps everything balanced and gives an accurate picture of what it actually costs to run your programs.
Donated services follow stricter rules. Under generally accepted accounting principles, you can only record donated services if they require specialized skills and the donor would normally charge for them. A lawyer donating 20 hours of pro bono legal work at $300/hour gets recorded as $6,000 in in-kind revenue and $6,000 in legal expense. A volunteer stuffing envelopes, while genuinely helpful, does not get recorded because it doesn’t require specialized skills. The same applies to general administrative help or event volunteering.
Valuation needs to be defensible. For goods, fair market value means what the item would sell for on the open market in its current condition. For professional services, use the provider’s normal billing rate. Document how you arrived at every valuation. If a donor claims a value that seems inflated, you’re not required to accept their number. Your books need to reflect what’s reasonable.
When a donor gives non-cash property worth more than $5,000, they need to file Form 8283 with their tax return. Your organization may need to sign Section B of that form as the donee. And if you sell or dispose of the donated property within three years, you’re required to file Form 8282 notifying the IRS.
In-kind donations directly affect your Form 990 reporting. They appear as revenue on Part VIII and as expenses in the functional expense statement. Misreporting in-kind contributions is one of the more common 990 errors, and it can raise red flags during audits or grant reviews. Many grantors want to see in-kind support broken out separately in financial reports, especially when matching funds are involved.
Track every in-kind gift with a record of the donor, date, description, valuation method, and fair market value. A simple log works for organizations with occasional donations. For nonprofits receiving regular in-kind support, build this tracking into your monthly bookkeeping process so nothing falls through the cracks. Working with bookkeepers in Fairfax who understand nonprofit accounting makes a real difference here, because the rules around what qualifies for recognition and how to present it on your 990 are easy to get wrong without the right experience.
Northern Virginia's Bookkeeping & Advisory Firm
First Step:
Tell Us About Your Business
Every engagement starts with a conversation. Tell us what's going on with your books and we'll give you our honest assessment.
More Questions
How should I track employee labor vs. subcontractor labor in job costing?
Employee labor flows through payroll with a burden rate applied per job. Subcontractor labor flows through accounts payable as a separate expense per job. Both need to be tracked by job but kept in separate cost of goods sold accounts.
Read answerWhat does a 1031 exchange look like in your books?
A 1031 exchange defers capital gains by rolling the adjusted basis from the old property into the new one. Your books need to reflect the carryover basis, keep QI proceeds out of your operating accounts, and properly handle any boot received.
Read answerHow do I handle bookkeeping for a house flip vs. a long-term rental?
Flips and rentals are treated completely differently in your books and on your tax return. A flip is inventory held for sale, with all costs capitalized into cost of goods sold. A rental is investment property that gets depreciated over time on Schedule E.
Read answerHow do I handle an IRS tax lien or back taxes on my business?
You have several options depending on your financial situation, including installment agreements, offers in compromise, currently not collectible status, and penalty abatement. An Enrolled Agent can evaluate which path fits your business and negotiate directly with the IRS on your behalf.
Read answerHow does Fairfax County business personal property tax work?
Fairfax County taxes tangible business assets like equipment, furniture, and computers annually. Businesses file a return listing assets and their depreciated values, and accurate fixed asset records in your books make the process straightforward.
Read answerWhat records do I need to keep for a DOT audit or IRS audit as a trucking company?
DOT audits focus on safety compliance records like driver qualification files, HOS logs, and vehicle maintenance. IRS audits focus on financial records including bank statements, depreciation schedules, and per diem documentation. Trucking companies need to maintain both sets at all times.
Read answer
