Skip to menu
Skip to content

Supporting Your Faith with Fiscal Accountability

Testimonials

I have personally known Mark Patrick since 1988. I have worked with him both professionally at the corporate level and personally as he has been my accountant. It is without hesitation that I would recommend him and his company.

Edmond P. Nash

Sign up to receive notifications of new blog posts

Call: 904-398-4747

Maintaining Goodwill with Your Donors by Documenting Their Gifts (Part 4 of 4)

In previous postings we discussed both cash and non-cash contributions—how to account for them and qualify them as charitable deductions for your donors. Unquestionably, every charity also depends on in-kind gifts to support its programs, some of which may count as charitable donations, but most will not. Let’s look at the fundamentals of these transactions to see why these donations are generally nondeductible.

The term “in-kind contributions” is used to refer to donations other than cash and tangible items, which generally do count as deductions. These in-kind contributions may include personal services or use of the donor’s property without paying for it. Even the accounting rules can be complicated to understand, but here is a brief explanation:

When someone volunteers to clean, paint, answer the phone, run errands or perform other needed tasks, his or her actions certainly hold value. However, the individual incurs no real cost to providing that service. Generally, the IRS only permits deductions according to the “basis” or out-of-pocket cost of the donation.

So while your volunteer may have missed the opportunity to earn income while working for you, his or her service didn’t cost any real money. The same would be true of someone providing the use of office equipment or office space. Certainly there are costs invested in the property, but it didn’t materially cost more to let a charity use it than to let it sit idle.

Should you send a receipt and note of thanks for the donor’s generosity? Absolutely! Does the donor get an additional tax deduction? Absolutely not.

There may be some circumstances where the donor would appear to earn a deduction, such as loaning an executive or bookkeeper during business hours, but there’s still no additional cost in doing so. The generosity is appreciated, but not deductible.

Even though the donors receive no tax benefits for providing services, the charity’s accounting of it is still very important. Some organizations receive matching grant credit for contributed services, so they need to account for and accurately value the time or use of property.

For financial reporting, the types of gifts recorded are usually only professional services—legal, medical, accounting or engineering, for example—and the use of property, in lieu of rent. Essentially, these values are accounted for as gross income, and then an offsetting amount recorded for whatever that type of expense would normally be charged.

Routine non-professional services are much appreciated but not accounted for because valuing such assistance is much more difficult.  So while these heartwarming activities, whether building houses or delivering meals, are essential to operate a charity, in the world of accounting and taxation, they’re generally only noted with sincere thanks. These acts are truly selfless, and for that we’re all thankful to those who provide them.

Over the last several weeks, we’ve covered cash, non-cash, and in-kind donations to non-profits and the rules on documenting these contributions. For more information on these topics or answers to other related questions, please contact Online Stewardship at 904-398-4747 or lynn@onlinestewardship.com.

10/25/12

Comments are closed.

« »