In-kind donation accounting: What it is and how to record it

Key Takeaways

• An in-kind donation is a contribution of goods, services, or use of property instead of cash, and under FASB rules it must be recorded on the financial statements at its fair value at the date received, not left off the books entirely.

• Common examples include donated professional services (legal, accounting, medical), donated equipment or supplies, free or discounted use of facilities, and volunteer labor that meets specific recognition criteria.

• Not all volunteer time qualifies for recognition. Under ASC 958-605, donated services are only recorded if they create or enhance a nonprofit asset, or require specialized skills the volunteer possesses and would otherwise have been purchased by the organization.

• In-kind donations are recorded as both revenue and an offsetting expense or asset in the same period, at the same fair value, which means most properly recorded in-kind gifts have no net effect on the bottom line, only on the gross figures reported.

• Since 2020, Form 990's Schedule M has required more detailed disclosure of noncash contributions, and donors claiming a deduction above certain thresholds need specific substantiation from the receiving organization, making accurate valuation a shared responsibility.

A local law firm provides twenty hours of pro bono legal work to a nonprofit reviewing a new lease. No check changes hands, no invoice gets sent, and it would be easy to let the whole transaction pass through the books unrecorded. Under GAAP, that's not optional. The value of that legal work has to appear on the financial statements, at fair value, the same way a cash donation would.

Numetix takes an expert-led, AI-powered, and human-in-the-loop approach to in-kind gift recognition, valuing and recording every qualifying contribution at the point it's received, not estimating it loosely at year-end. This guide covers what qualifies, how to value it, and what doesn't count.

Quick Answer: What is an in-kind donation and how is it recorded?

• An in-kind donation is a non-cash gift of goods, services, or use of property. It must be recorded at fair value at the date received, appearing as both revenue and an offsetting expense or asset in the same accounting period.

• Common examples include donated professional services, equipment, supplies, discounted facility use, and volunteer labor that meets specific FASB recognition criteria.

• Volunteer time is not automatically recordable. It only qualifies if it creates or enhances a nonprofit asset, or requires specialized skills the organization would otherwise have paid for.

What actually qualifies as an in-kind donation

An in-kind donation is any contribution other than cash: donated goods (equipment, supplies, inventory), donated professional services (legal, accounting, medical, or other specialized expertise), free or below-market use of facilities or equipment, and certain categories of volunteer labor. The common thread is that the organization received something of real economic value without paying cash for it, which means that value needs to be reflected in the financial statements just as clearly as a cash gift would be.

Is an in-kind donation taxable income to the nonprofit?

Generally, no, in the sense that a properly recognized in-kind contribution to a tax-exempt organization is not taxable income in the way unrelated business income would be. It is, however, recordable revenue on the organization's own financial statements at fair value, which is a distinct question from tax treatment, and it follows the same contribution recognition rules that govern cash gifts. The contribution and its offsetting expense typically net to zero effect on the change in net assets, but the gross revenue and expense figures still need to appear, since donors, grantors, and Form 990 readers rely on seeing the organization's full economic activity, not just its cash transactions.

Why volunteer labor is the trickiest category

Not all volunteer time gets recorded, and this is where most nonprofits either over-record or under-record. Under the accounting standard governing contributed services, ASC 958-605, donated services are recognized only if they meet one of two tests: they create or enhance a nonfinancial asset (a volunteer carpenter building a shed the organization will use), or they require specialized skills, are provided by someone possessing those skills, and would typically need to be purchased if not donated (a volunteer CPA preparing the organization's financial statements). General volunteer labor, someone staffing a phone bank or sorting donated clothing, does not meet either test and is not recorded on the financial statements, even though it's genuinely valuable to the organization's mission.

How to value an in-kind gift correctly

The valuation standard is fair value at the date of receipt, meaning the price the organization would receive if it sold the donated item, or the price it would pay to obtain the equivalent service, in an orderly transaction between market participants. For donated goods, this often means the item's current market resale value, not its original purchase price or replacement cost. For donated professional services, it means the professional's normal billing rate for that type of work, not a discounted or symbolic figure. Documentation matters here: the organization should retain a record of how each valuation was determined, since this same figure often needs to support a donor's own tax deduction claim.

What changed on Form 990's Schedule M

Organizations reporting noncash contributions above certain thresholds must complete Form 990's Schedule M, which requires disclosing the number and type of noncash contributions received, the method used to determine value, and whether the organization has a formal gift acceptance policy governing noncash and unusual gifts, guidance the IRS's own guidance on substantiating noncash contributions covers directly. This disclosure requirement makes the organization's valuation methodology visible to the public, which is one more reason a documented, consistent approach to valuing in-kind gifts matters beyond just internal recordkeeping, and connects directly to how functional expenses get allocated once the gift is recorded.

Frequently asked questions

Is a pledge to donate goods in the future recorded the same way as an item received today?

Not quite. An unconditional promise to give a noncash item in the future is generally recorded as a receivable and revenue at the time the promise is made, at the item's estimated fair value at that time, following the same unconditional-contribution recognition rules that apply to pledged cash gifts. A conditional promise, one with a genuine barrier that must be overcome, is not recorded until the condition is satisfied.

Does the organization need a written gift acceptance policy for in-kind donations?

It's not universally legally required, but it's considered a best practice and is specifically referenced on Form 990's Schedule M, which asks whether the organization has a gift acceptance policy requiring review of unusual noncash contributions, a governance question that ultimately falls under the board's financial oversight duty. A written policy also protects the organization from accepting gifts that create more cost than value, such as property with environmental liabilities or equipment requiring costly disposal.

Who is responsible for determining the value of a donated item, the donor or the nonprofit?

The donor is generally responsible for substantiating the value they claim on their own tax return, but the nonprofit is responsible for recording the gift at fair value on its own financial statements, and these two valuations should be consistent with each other. The nonprofit typically doesn't set the donor's deduction amount, but it does need to provide a written acknowledgment describing what was received, without stating a dollar value, leaving the valuation determination to the donor and their own tax advisor for donations above certain thresholds, guidance detailed in IRS Publication 561 on determining the value of donated property.

For nonprofit organizations that need every in-kind gift valued and recorded correctly at the point of receipt, our bookkeeping services apply consistent fair value documentation as part of the standard monthly close, expert-led, AI-powered, and human-in-the-loop.

See the fund accounting for nonprofits guide for the full fund tracking and revenue recognition framework.