Non-profit organizations do not receive only cash donations. Your support also likely comes in the form of gifts in kind and donated services. Even when such gifts are welcome, it can be challenging to determine how to recognize and assign value to them for financial reporting purposes.
Recording gifts in kind
Gifts in kind generally are pieces of tangible property or property rights. They may take many forms, including:
- Free or discounted use of facilities
- Free advertising
- Collections, such as artwork to display
- Property, such as office furniture or supplies
To record gifts in kind, determine if the item can be used to carry out your mission or sold to fund operations. In other words, does it have a value to your non-profit? If so, it should be recorded as a donation and a related receivable once it is unconditionally pledged to your organization.
To value the gift, assess its fair value or what your organization would pay to buy it from an unrelated third party. In many cases, it is easy to assign a fair value to property, but when the gift is a collection or something that does not otherwise have a readily determinable market value, its fair value is more difficult to assign. For smaller gifts, you may need to rely on a good faith estimate from the donor. However, if the value is more than $5,000, the donor must obtain an independent appraisal for tax purposes, which will give you documentation for your records.
Recognizing donated services
The fair value of a donated service should be recognized if it meets one of two criteria:
- The service creates or enhances a non-financial asset. Such services are capitalized at fair value on the date of the donation. These types of services either create a non-financial asset (in other words, a tangible asset) or add value to an asset that already exists.
- The service requires specialized skills, is provided by persons with those skills, and would have been purchased if it had not been donated. These services are accounted for by recording contribution income for the fair value of the service provided. You also must record it as a related expense, in the same amount, for the professional service provided.
Beyond the basics
These are only basic guidelines to recognizing and valuing gifts in kind and donated services. For more comprehensive information about handling these gifts, contact us.