October 30, 2024
With fall fundraisers in full-swing and the calendar year 990 extension deadline coming up, we often receive questions about tracking and reporting in-kind donations and services. It can be confusing to figure out how to classify some transactions like silent auction donations, rent-free office space, and volunteer hours.
Even though donated services and facilities may be reported as items of revenue and expense in an organization’s financial statements, many states and the IRS don't permit the inclusion of those amounts in tax return reporting. When working to finalize your organization’s tax return, be sure to separate the value of in-kind items and services.
Let’s break it down.
“Contributions of property, tangible or intangible, other than money. Noncash contributions include, but aren't limited to, stocks, bonds, and other securities; real estate; works of art; stamps, coins, and other collectibles; clothing and household goods; vehicles, boats, and airplanes; inventories of food, medical equipment or supplies, books, or seeds; intellectual property, including patents, trademarks, copyrights, and trade secrets; donated items that are sold immediately after donation, such as publicly traded stock or used cars; and items donated for sale at a charity auction. Noncash contributions don't include volunteer services performed for the reporting organization or donated use of materials, facilities, or equipment.”
Organizations should report noncash donated items at their fair market value when they are received. Discounts provided on the purchase or sale of goods in the ordinary course of business should not be reported as contributions.
Use of facilities, professional services, donated advertising space, broadcast airtime, and use of equipment are all considered in-kind services. In-kind services are generally not tax-deductible for the donor, and are excluded from noncash contributions reporting with the IRS due to the following:
You can’t deduct the value of your services provided as part of an in-kind donation; however, you might be able to deduct unreimbursed expenses that are directly connected to the services you provided. For example, a handyman offering services at no cost to a nonprofit organization cannot deduct their time but could deduct any supplies purchased to do their work for the organization.
Gift cards are generally viewed as in-kind donations because they represent a tangible value that can be used to purchase goods or services. However, an important distinction should be made for gift cards used to purchase services. For example, if someone purchases a gift card for a massage and donates it to a charity, the gift card can be considered a deductible gift for the donor and reportable as an in-kind contribution on the charity’s tax return because the donor paid cash for the donation.
Alternatively, if a business that regularly provides services donates a gift card for its services to a charity, it generally is considered a nondeductible donation of services because there is no actual property given. For example, if an amusement park gives a charity a free day pass to their park it would be considered a non-deductible donation of service by the park and not reported to the IRS on the charity’s tax return.
It is important for nonprofit organizations to keep track of their in-kind contributions and consult with a tax professional to help you determine treatment of your specific situation. They can provide guidance based on the applicable tax laws and regulations. For additional guidance on this topic please contact us today. Larson and Company has developed a suite of services specifically to serve the needs of companies of all sizes in a wide range of industries.