What is an In-Kind Donation?

What is an In-Kind Donation?

Definition

An in-kind donation is a non-cash donation made to a 501(c)(3). These donations help nonprofit organizations in meeting their goals. Donors to a 501(c)(3) can claim a tax deduction for the value of the gifts that they make in certain circumstances.

What does in-kind donation mean?

Nonprofit organizations play an important role in the US economy. According to the National Center for Charitable Statistics, there are more than 1.5 million nonprofits in the country. Many of them rely on donations to fulfill their mission.

Nonprofits can accept donations in cash or in kind. In-kind donations may be made in several ways:
  • Goods – food, clothing, equipment of various types, machinery, cars, books, and office equipment.
  • Services – legal and accounting services, mentoring, tutoring, and other types of support.
An in-kind donation may also take the form of an organization providing its office space or a meeting room to a nonprofit to conduct its activities.

Why would a company prefer to make an in-kind donation to a 501(c)(3) instead of simply providing cash? There are several advantages to making in-kind donations.

Firstly, this type of donation would not affect a company’s cash flow. A business organization may prefer to use its cash for its operations. In-kind donations often take the form of products that a company manufactures or deals in.

A kitchen equipment manufacturer could donate some of its products to a charitable organization that provides free meals to the needy. Similarly, an auto company could give a 501(c)(3) a car that could be used by the charitable organization for its day-to-day work.

There is another reason why businesses prefer making in-kind donations. If they provide their own products to a charitable organization, they get free publicity. In addition to this, they can improve their company’s image.

Example of in-kind donation

Vision20/20 is a 501(c)(3) that provides free eye care to people who cannot afford to pay for their treatment. It raises funds from various sources that include individual as well as corporate donors.

Green Ophthalmic Instruments Inc. is a regular donor. It provides Vision20/20 with in-kind donations in the form of Retinal Cameras and Ophthalmic Ultrasounds.

This is an arrangement that benefits both the organizations. Vision20/20 receives free equipment and maintenance support while Green Ophthalmic Instruments Inc. gets public exposure for its charitable activity. The donor receives tax benefits as well.

Summary

In-kind donations are non-cash donations that help 501(c)(3) nonprofits meet their objectives. These donations could be in the form of goods or services.