Not all gifts you receive will be in cash. Donors may also want to contribute goods or services, which are called gifts in kind (GIKs). These are recorded differently than cash contributions, so they merit closer attention.
GIKs should be recorded in your financial records at fair market value – the market price that would be exchanged for the asset or service in an arms-length transaction. If you receive the GIK free of cost, record the entire value as a gift. If you pay a discounted value, or if the donor receives anything in return, record a contribution for the market value, minus what the donor received.
You will also record an expense related to the GIK, of the same amount as the contribution. With most GIKs, you will record the expense at the same time as the contribution, though in some cases you should record it as an asset, and expense it later on. For example, if you receive medical supplies to use at a clinic, or airtime for media advertising, or other inventory, you would record it as an asset when you receive the GIK, then an expense when the gift is used.
Contributed services are not necessarily recorded as a GIK, for accounting purposes. There are 3 factors that must be met before they can be recorded.
- The services must create or enhance a nonfinancial asset.
- The services must require specialized skills, and be performed by entities or persons who have these skills. If someone is providing services outside of what they are specialized in, e.g. an attorney helping with general office filing, that would not be recorded as a GIK.
- Your organization would need to purchase the services if they were not donated.
GIKs are fully tax-deductible to donors, but the acknowledgment letters you send to donors for GIKs will also differ from those for cash donations. The acknowledgment letter you send must include a description of what was given, rather than the value of the gift. The donor is responsible for determining the value when he/she is deducting it from his/her taxes. This includes gifts of stock, even though their value can easily be determined; detail the number of shares you received and what company the shares are in.
Contributed services are not tax deductible by the person or entity who performed the service, though it’s still good for donor relations to send a letter of thanks, since they’re contributing to your organization. If the volunteer had out-of-pocket expenses costs related to their services, they can deduct anything not reimbursed.
There are 2 forms related to contributed goods that need to be filed with the IRS under certain circumstances. If you sell or dispose of a donated asset within 3 years of receiving it, you file Form 8282. There are 2 exceptions when you don’t need to file it – any item valued under $500 doesn’t need to be reported, nor do items consumed or distributed for charitable purposes.
If a donor claims a deduction of more than $500 of donated goods, he/she must file Form 8283, providing details of the goods donated and recipient organization(s). If a single item, or group of related items, has a value higher than $5,000, the IRS requires that it be appraised by someone with expertise in this type of property, within 60 days of the donation being made.
Donated Services – Cohn Reznick
Valuing Donated Property – IRS Publication 561