An Overview of In-Kind Gifts

By | Accounting, Donations, Nonprofit | No Comments

Many nonprofits rely upon in-kind donations for their activities. Gifts “in-kind” are any donations to a nonprofit that are not cash. A good example is food collected and given to a food bank to distribute directly to others.

If your nonprofit relies heavily upon gifts in-kind for its activities and programs, this guide to accounting for and handling the financial aspects of in-kind donations will be invaluable.

Distinguishing In-Kind Gifts from Other Types of Donations

It is important to distinguish in-kind gifts from other types of donations. For example, items given to a charity in which the use is specified by the donor are not true in-kind donations. Neither are items given to the charity that are to be used by another entity.

An in-kind gift consists of a broad array of goods that may include:

  • Computer hardware and software
  • Office furniture
  • Equipment such as saddles used in a therapeutic riding program
  • Wheelchairs or medical equipment used by a charitable health program
  • Food donated to a food bank

Such items are used directly by the organization or given to the people the charity serves.

Accounting for In-Kind Donations

Under GAAP rules, gifts in-kind should be recorded as revenue when received and also recorded as an expense. Recording them as revenue upon receipt means:

  • Recording the revenue at “fair market value.” Fair market value reflects the average price that your organization would have paid for the item if you had to buy it.
  • Recording the offset value, or the amount of revenue that is the corresponding value as an expense of in-kind good or services.
  • Recording tangible property, such as land or buildings, as an asset to your organization.

Budgeting In-Kind Gifts of Services

One important consideration is the gift of in-kind services. If these services occur on a regular basis, they should be budgeted for in your nonprofit’s budget. For example, if your accountant donates her time to preparing the annual report, she should provide you with a receipt stating the value of the services rendered. You would then budget for that amount in your yearly budget. This way, if your accountant retires, moves, or simply chooses not to donate her services again, you are still prepared to pay the going amount for similar professional services.

Acknowledging the Gift and Providing a Receipt

As we’ve shared in a previous article on tax donation receipts, gifts should be recognized with both a thank-you note and a receipt. The receipt should be similar to those provided for cash gifts. An in-kind gift donation form created by your organization also provides a consistent record of all gifts in-kind and helps you record and track their value over time.

Create a Gift Policy

Lastly, it is a good idea to create a gift policy for your organization that lists the types of gifts accepted, how gifts in-kind are recognized, and how they are used.

Donors come in all shapes and sizes. Some prefer to give cash. Others want to give tangible property that they know can be put to good use. Gifts in-kind offer a valuable asset to your organization, one that should be recognized properly both in your accounts and in the donor’s taxes. With the right tracking and organization, you’re on your way to a solid in-kind donation policy and process that can help you handle these gifts with ease.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Acknowledging Donations Graciously – and With Tax Receipts

By | Accounting, Donations, Nonprofit | No Comments

Nonprofit managers know the power of a gracious thank you when it comes to acknowledging donations. It’s part of donor management—ensuring that donors feel valued and appreciated.

But accompanying a lovely thank-you note should be something more ordinary: a tax donation receipt. A receipt for donation isn’t just proof that the donor gave money to your organization, but a document that can be used by donors to take a tax write-off. Here’s what your donation thank you and receipt should include.

Tax Deductions for Nonprofit Donations

Tax deductions may be claimed for those who donate goods or money to a charitable organization. Charitable organizations should be recognized as a 501 (c) (3) organization by the IRS.

A donation means that the money or goods given to the organization are done so without anything given in return. If you paid for a t-shirt at a museum gift shop, for example, that would not count as a charitable donation because you received the t-shirt in return. If, however, you donated $25 to the museum without receiving an item in return, it may be considered a charitable donation.

Thank-You Letters and Tax Documentation

Thank-you letters may seem old-fashioned, but donors do appreciate the acknowledgement of their generosity. In addition to a personalized thank-you letter, your organization should also include a receipt for the donation which the donor can use for charitable tax deductions.

Such receipts should include specific information, such as:

  • The donor’s name, address, and date the donation was received
  • The organization’s legal name
  • The organization’s tax status
  • The organization’s EIR
  • Total dollar amount given
  • If anything other than money was given, a description of the item donated

You should also include a note stating whether or not a gift was given as a thank you. A simple description is fine— “We hope you enjoy this small bookmark as a token of our gratitude” is sufficient. Remember, they are not paying for the gift, but you should acknowledge it in the letter.

Lastly, be sure to include a reminder to the donor to keep the letter and receipt as proof of their donation. Keep a copy in your files, too. You never know when you might get a call from a donor looking for it!

MIP Fund Accounting Makes Donation Receipts Easy

If your nonprofit is running MIP Fund Accounting software, you have the ability to print donation receipts right from your system. It’s part of the general ledger module, and it’s included in every MIP package.

You can access it immediately or, if you’re a current client and can’t quite figure it out, give Vicki at call at Welter Consulting, 206-605-3113. And, if you’re not currently a client but you’re interested in finding out more about how nonprofit accounting software can make your organization run smoothly, we welcome your call too.

Other Ideas to Thank Donors

One of the best ways to thank donors is to do so personally. A handwritten letter, a heartfelt typed letter, and of course, that donation receipt is much appreciated.

Other ways to thank your donors include:

  • Mentions on social media
  • Mentions in printed newsletters
  • Share a story or picture of how the donation was used
  • Create a short “thank you” video
  • Offer a small gift or inexpensive token of appreciation

A gracious thank you goes a long way toward enhancing the donor experience. And, along with a thank you, be sure to include your donor’s receipt so they can take advantage of the tax deduction.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 fo

Gain Donor Support for Overhead and Infrastructure Dollars

By | Donations | No Comments

After stories in the media showcased lavish travel and other perks among some nonprofit leadership, the public outcry became deafening. The public believed that their cash donations should go directly towards the people they thought they were helping. Nonprofits, eager to prove that they were using funds wisely, began touting the percentage of donations that go ‘directly towards helping those they serve.’

The problem with this model, however, is that it doesn’t address the ongoing need for funds to support overhead. Yes, overhead. Many nonprofits bemoan the limited funds given to them for overhead, yet do nothing to educate the public about why donating to general funds that include overhead, marketing, and administrative costs are necessary.

Nonprofits Are Businesses

Part of the problem is that many people still believe a nonprofit organization is in effect a full charity with zero need for funds for things like office rent, utilities, computers, telephone services, and salaries.

People seem to equate the nonprofits of the 21st century with the charitable organizations of the 19th century. You know, the ones you see in movies, run by ladies with leisure time out of their sitting rooms over cups of tea.

Okay, so we exaggerate, but there’s still a public perception that nonprofits aren’t businesses but charities that should give away all of their funds.

While it is true that nonprofits do not seek a profit margin the way for-profits do, they do need margin to continue their operations, and they certainly need capital to go towards infrastructure.

Ratios Can Be Misleading

Touting the proportion or percent of funds going directly towards programs can be misleading. If 99% of the donated funds go towards programs, nothing is left to pay the bills. And if you can’t pay the bills, the nonprofit won’t be able to continue operations. It’s not an either/or scenario – either funds go towards programs or overhead. It should be both.

Every Penny Goes Towards Supporting the Mission

Instead of promoting the percent of funds that go directly to the nonprofit’s recipients, it would be better if organizations promoted how their donations go towards supporting the overall mission of the organization. After all, every penny donated to a nonprofit, whether earmarked to pay the water bill or to buy food for the homeless, goes towards the support of the organization’s mission.

A few ideas to help you showcase your mission rather than the ratio of funds going towards program recipients:

  • Use images on social media to showcase the recipients without promoting percentages
  • Explain how you track and monitor the use of funds, and reassure donors that all money goes towards fulfilling the organization’s mission
  • Disclose the needs of your nonprofit for overhead and infrastructure. Don’t skip over it in your messages to your constituents. If you need funds for a new roof or to pay the electric bill, say so.
  • Showcase how your nonprofit is more efficient or effective this year than last year — share program results and outcomes

Nonprofits, like any other organization, need money for their infrastructure. By including transparent, honest messages in your marketing to donors and potential donors, you’ll avoid the trap of focusing only on the percent or ratio of dollars spent on direct programs and help raise awareness that yes, overhead and infrastructure are essential, too.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Three BIG Mistakes Organizations Make Asking for Donations – and Fixing The Mistakes with Donor Management Software

By | Donations | No Comments

Does your organization raise money primarily through individual donations? If so, when is the last time you reviewed how team members are asking for donations – and whether or not it’s effective?

These three mistakes can detail or slow any donor giving campaign. Take a moment now to review your organization’s donor campaigns and fix these mistakes before they negatively impact fundraising.

Mistake #1: Lack of communication about marketing activities

Susan sends out emails on Monday. John plans a direct mail campaign while Lynn is busy with social media activities. The team doesn’t find out until Friday’s staff meeting what each person has been working on and discovers that each one spent hours creating templates, adding graphics, and crafting the right copy to ask for donations.

What if the team members could have pooled their resources and shared them? Just knowing that an email, direct mail campaign, and social media blast was going on in one week, and that many resources could be shared among these tactics, would have helped all three people save considerable time. The email blast could have been shared on social media; text from the direct mail letter may have made a great template for the email.

A lack of communication and coordination among team members conducting donor campaigns is the biggest mistake on the list. It wastes time and money, duplicates efforts, and potentially annoys donors if they receive frequent or repetitive communications.

Mistake #2: Using separate software to track activities

Susan, the person in our example above who sends emails, uses a commercial email marketing platform to send her messages out. She manages the email list within that software platform.

John painstakingly adds mailing addresses to an Excel spreadsheet. He keeps the sheet in good order, and hands it off to the mailing house to affix address labels to the direct mail packages.

Lynn also uses spreadsheets, but tracks the messages she sends out in Excel. She tracks the messages sent, when, and from what channel they are sent.

What’s wrong with this picture? While this team may be using the software available to them, they aren’t using it efficiently. None of their systems communicate with each other, so they do not have the opportunity to share data and resources. And no one appears to review the results of their marketing efforts to find out what’s working and what can be improved.

A single donor management and contact management system would make their efforts much easier and more effective.  Such systems integrate with nonprofit accounting systems and share contact information across multiple platforms. John, Lynn, and Susan could easily track not just their efforts but the results, and measure it to find out what worked so they can repeat successes and avoid failures.

Mistake #3: Using personal email addresses to send donor requests

Staff and volunteers may not realize how unprofessional it looks to send donor requests from a personal email address. Not only does it look unprofessional, but it may also compromise your personal email address if the recipient’s contact book is hacked.

Instead of using personal email addresses to send out donor communications, at the very least, professional addresses from the organization should be used. Many donor contact management systems send mass emails from an @ email address so that your private email address is hidden.

Fix It Fast with a Donor Management System

If you recognize any of these mistakes occurring in your organization, it’s time to fix it, and fix it fast, before one mistake lowers your chance of achieving your fundraising goal. Discover the many donor management systems available to you. Contact Welter Consulting  for more information on how your organization can benefit from donor management systems.