How to Handle In-Kind Donation Tax Receipts for Nonprofits
By Kyle Payton of ThriftCart
Accepting non-cash gifts is a standard part of fundraising for many nonprofit organizations, particularly those that operate thrift stores or frequently host auction events. However, many nonprofits mistakenly issue the same donation tax receipts for in-kind gifts that they do for cash gifts.
In this guide, we’ll look at the essential requirements for in-kind donation receipts and provide a framework for creating a reliable receipt template. But before we do that, let’s discuss how in-kind donations can help you diversify your revenue streams and even grow your nonprofit’s operations.
Diversifying Revenue with In-Kind Gifts
As nonprofits scale up, they often hit a barrier where the revenue they generate is insufficient to support continued growth. In situations like these, revenue diversification is often the solution. And while there are many different types of gifts mission-driven organizations can pursue, from donor-advised fund grants to cryptocurrency, non-cash or non-financial gifts are a top choice for many organizations.
When managed correctly, in-kind gifts can:
Offset operational expenses: Donations of equipment or professional services can offset the costs that you would normally incur, freeing up your budget for other items.
Serve as a donor acquisition tool: Minor to major donors may not always be willing to make cash gifts for various reasons, such as straining their day-to-day finances or feeling that they’ve recently donated. In-kind gifts often have a lower barrier to entry, enabling donors to support your mission even if they’re not ready to make a cash donation at the moment.
Convert into unrestricted revenue: By operating secondhand stores or hosting auctions, your nonprofit can turn in-kind gifts into unrestricted funds that you can use to grow operations and more effectively support your mission.
However, scaling up a revenue stream of in-kind donations requires a streamlined process. It’s critical that you deliver a donation tax receipt to all donors, including in-kind donors, both to adhere to IRS guidelines and to demonstrate your professionalism. This boosts trust in your organization and results in greater support for your mission, not to mention it prepares your nonprofit for any potential financial audit. Treating in-kind donors with the same level of care and compliance as cash donors is a crucial first step to acquiring more of these gifts.
IRS Requirements for Non-Cash Gifts
In-kind donations occupy a unique space in nonprofit accounting. Unlike cash contributions, the value of these items is often subjective or determined solely by the donor. This ambiguity creates a specific set of responsibilities for nonprofits.
Before designing an in-kind donation tax receipt template, you need to understand what the IRS requirements are for these receipts. In ThriftCart’s guide to donation receipts, they explain that your receipt must include:
Your organization’s name and employer identification number (EIN)
A description of the in-kind donation
The fair market value of the gift
A statement indicating whether your organization provided any goods or services in exchange for the gift
If goods or services were provided (other than intangible religious benefits), a description and good-faith estimate of their value
Your organization is responsible for acknowledging the gift and describing it, but not for assigning a specific dollar value for tax deduction purposes. For in-kind donations, it is the donor's responsibility to determine the fair market value (FMV) of their gifts.
Keep in mind that for any contribution (cash or in-kind) valued at $250 or more, a donor must have a donation receipt from your organization to claim a charitable tax deduction. Having a seamless receipting process ensures that they receive their tax receipt and can claim any necessary tax deductions. This goes a long way to providing a stellar donation experience that invites further engagement.
Creating Your In-Kind Donation Tax Receipt Template
Standardize your in-kind donation tax receipts by creating a template. A tax receipt template will also ensure you always issue the right kind of receipt and speed up the receipting process, especially at busy donation dropoff centers. Here are a few tips to build an effective template:
Build trust with professional branding. Integrate your nonprofit’s typography and brand colors with your donation tax receipts. Place your logo prominently at the top alongside your EIN and contact info. This reassures donors that your organization is a legitimate 501(c)(3) nonprofit and that this document is valid for their tax records.
Streamline donor data entry. Whether digital or paper, the layout should match the flow of conversation. Group donor name and address fields together at the top. If using a point of sale (POS) system, configure it to automatically populate this information from your donor database to save time and prevent duplicates.
Prompt for clear descriptions. Vague descriptions like "Household Items" can be problematic during an audit. Create specific fields or checkboxes for common categories (e.g., "Furniture," "Clothing," "Electronics") followed by a line for specific details. This encourages volunteers to be more descriptive (e.g., "One mahogany dining table") without slowing them down.
Add a valuation disclaimer to prevent friction. Donors often ask, "How much is this worth?" while handing over their in-kind gift. Include a clear, polite disclaimer stating: "Please note: [Organization Name] does not assign a dollar value to in-kind gifts. Valuation is the privilege and responsibility of the donor." Pointing to this text is easier for staff members and volunteers than explaining tax law.
By treating your template as a strategic asset, you reduce administrative headaches and ensure every donor feels your organization’s professionalism when they make an in-kind gift.
Best Practices for In-Kind Donation Tax Receipts
Once you have a compliant template, the next step is operationalizing it and making it easy for staff members and volunteers to use. Here are a few ways you can do that:
Automate at the point of service. If you operate a thrift store or accept high volumes of goods, manually printing or writing out receipts is cumbersome and inefficient. Modern POS systems for thrift stores can generate e-receipts immediately upon dropoff, reducing data entry errors and ensuring the donor receives their documentation instantly via email.
Standardize item descriptions. Use consistent categories (e.g., "Men's Apparel" vs. "Clothes") in your internal systems. This consistency helps with inventory tracking and reporting later.
Keep digital records for audit readiness. Store copies of all in-kind donation receipts digitally. If your nonprofit is audited or a donor requests another copy, being able to quickly retrieve the specific receipt demonstrates strong internal controls.
Photograph high-value items. For unique or significant donations (like antiques or vehicles), snapping a quick photo to attach to the digital donor record provides an extra layer of verification and can be useful for stewardship reports later.
Separate the receipt from the stewardship. As Handbid says, don’t be stingy with your gratitude for in-kind gifts! The donation tax receipt is a legal obligation, but be sure to also follow up with an email, handwritten letter, digital card, or phone call, depending on the value of the gift. Ideally, you should thank your donors as soon as possible for their generosity and encourage them to engage further with your mission.
By following these tips, you can grow and scale up your in-kind donation operations, which results in more funding and support for your nonprofit. Then, you can put your budget toward other critical programs and activities to fulfill your mission and assist your beneficiaries.
Offering different ways to support your mission not only invites more support but also starts new, fresh conversations that may inspire and fuel long-term relationships with donors. Effectively handling in-kind donation tax receipts is a critical component of this process, as it builds a system that respects your donors’ time and protects your organization’s standing. Take the time to consider how your nonprofit currently handles in-kind gifts and assess the quality of your tax receipts.
This guest post was written by Kyle Payton.
With three years in the thrift industry during a pivotal shift to omnichannel selling, Kyle Payton helps stores better manage inventory and forecast product needs. As General Manager at ThriftCart, he focuses on equipping nonprofit thrift operations with point of sale technology that makes their day-to-day operations easier. Kyle's passion lies in helping thrift store managers embrace digital solutions that support their unique mission and maximize their impact in the community. "Supporting nonprofits is incredibly rewarding. I’m here to provide thrift store managers with the tools they need to thrive, so they can continue making a positive difference in their communities."
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