What Is a In-Kind Donation 501C3?

By John Cromwell

A 501(c)(3), or non-profit, is an IRS approved organization that has a charitable, religious, public safety, or educational purpose. The benefit of qualifying as a nonprofit is that the organization does not have to pay taxes on the money it receives and donors to a 501(c)(3) can deduct the amount of their gifts from their taxable income. As a result, classifying and measuring the amount of donations, such as in-kind donations, can be an incredibly important part of preparing an entity’s tax return.

Types of Donations

There are two types of donations that can be made a to a 501(c)(3). A cash donation is the transfer of funds to a nonprofit. An in-kind donation is the transfer of any other type of asset. Donors to a nonprofit can be private or corporate. While private donors generally tend to make cash donations, in-kind donations are not uncommon. Corporations may prefer donating its products or services because such items would be easier to provide than money if the business has inconsistent cash flow. Charities may also prefer in-kind donations because in-kind gifts typically cost less to the donor than cash; therefore, the donor can afford to give more.

Valuing Donations

The value of a donation must be determined by the donor; the receiving nonprofit is not permitted to provide a valuation of the property it receives. Since it is not cash, it can be more difficult to determine the value of a donation. The IRS requires that the donation be priced at its "fair market value." Determining FMV can be easier in some situations than in others. For example, if someone were to donate publicly-traded stock, it would be simple to determine the value of that stock. However, if someone were to donate a painting, a professional assessment by a third party may be required.

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Deducting a Donation

Only tangible goods can be deducted from taxable income; services and time are in-kind donations but cannot be deducted. If the person who made the donation is an individual and she donated more than $500 worth of property, she will need to complete and attach IRS Form 8283, Section B to her personal income tax return. If the donor claims the total amount of her gifts exceed $500,000, she will also need to attach a qualified appraisal to her tax return.

Documenting the Donation

Regardless of whether you need to attach supporting documentation to your return, a donor needs to keep records of her donations for at least seven years after filing her taxes in case of an audit. When a donor makes a gift, the recipient will provide a document stating it received an in-kind gift. The receipt will describe what it received and when it was received, but will not list its value. It will also have the contact information of the recipient. The donor should also keep all documents that demonstrate the value of the in-kind donation when it was transferred, such as stock price and assessment reports.

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Non-Profit Requirements for Non-Cash Donations


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Can a Nonprofit Business Earn an Income?

Nonprofit organizations are given special tax status because of the benefits they provide to the community through their activities. Though these organizations can earn income without jeopardizing their special status, any profits made cannot be used for private benefit. Such organizations may have to pay taxes on income they earn through activities unrelated to their organizational purpose.

Regulations for 501(c)(3) Donations

One of the main benefits of creating a 501(c)(3) nonprofit organization is the ability to accept tax-deductible donations. The IRS designation 501(c)(3) indicates that the nonprofit is exempt from federal tax. However, in order to stay exempt and ensure donors can deduct their donations, it is essential to follow the IRS rules for written disclosures, record-keeping and annual reports.

How to Accept Property Donated to a 501(c)3

The Internal Revenue Service has strict rules governing donations of non-cash property to tax-exempt nonprofit organizations. For gifts of property valued at over $250, the organization must provide the donor with a written acknowledgment of the donation that includes information required by the IRS. The organization is required only to acknowledge receipt of the property; it should not use the acknowledgment to establish the property's value. It is the donor's responsibility to establish the fair market value -- or FMV -- of the donated property based on IRS rules and to indicate the value when the deduction is listed on the donor's tax return. If the organization or the donor fails to follow the rules, the donor can lose the right to deduct the donation, and both parties can face IRS fines and penalties.

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