Gifts in Kind
The simple response is that gifts in kind are non-cash good or services given to a charity. However it can be more complex than that because a charity who receives gifts in kind will needs to recognize those gifts in kind as revenue, and the person giving the gifts often wants a donation or recognition for the gifts in kind provided to the charity. The complexity behind the giving and receiving can be missed but its anything but easy and many charities have ended up in complex situations as a result.
How does the IRS or CRA know if you give a gift?
Gifts in-kind are donations of property other than cash. They can include donations of land, buildings, marketable securities, equipment, furniture, vehicles promotional items and raffle and auction prizes. Gifts in-kind do not include gifts of services and are not receiptable in Canada. This means when you give property it is receiptable, but when you give services you will not receive a charitable tax receipt. A receipt is valuable to the donor because it is recognized on your annual tax return and in the event, you do not need to use the donation in that year can be carried over to future years.
Value of Goods and Services
The value of the goods is not always clear, what is valuable to me is not necessarily valuable to you. The easiest was to think about this is in terms of a private sale, you have something, and you think it is worth 100 dollars, to someone else they think it is worth 50. You can decide to sell for 50 or wait until you find a buyer for a 100. The perceived value is different than the actual value. A number of years ago a merchandiser purchased a lot of t-shirts with the names of the winner of the Super Bowl on it, their team lost and the t-shirts lost their value overnight, but they in turn donated them to a charity at the cost of the t-shirts. The receiving charity was happy for t-shirts, but in fact the t-shirts had gone down in value and the cost of the t-shirts should have been less as a result. This is an example of a gift in kind gone wrong, the charity was in trouble because they had booked the value of the shirts, the merchandiser received lots of bad press because they were trying to re-coup losses by donating to charity. The perceived value was at the root of the issue.
Contextualized in-kind Giving
The second complexity with gifts in kind if in country value. Pharmaceuticals is a great example here, for years charities were provided drugs at a cost that exceeded the cost they were valued in country. Simply put the value of the goods must be contextualized to country receiving the goods. This led to a major devaluation and reconciliation in the international charitable space. The simple thing to remember here is gifts in kind are to be valued in the context of the country receiving them, or instead donate the same value in cash and imagine how far the money will go.
Understand the Needs of in-kind givings
International charities have additional complexity in understanding the context of the gifts in kind. An example an ADP in Zimbabwe received boxes of singing fish, remember the fish that go above the fireplace and the sing and move. How will they ever use the fish, if the programs that received them have no access to batteries. Gifts in kind are most valuable when it is something that is needed and fundraised for, rather than receiving and matching to a need. Understanding the international development world is complex, the needs are great and there are clear leaders in this space. Look for a reputable charity to donate your good or services to, they will be selective and ensure your generous donation goes somewhere it is needed.
Costs of Shipping Goods
Sometimes the cost of shipping goods outweighs the benefits of the goods themselves. Moving cargo can be expensive and involve the cost of the freight itself, but also of the handlers on the shipping, receiving and distribution of the goods. This complexity is why many charities do not even accept goods for distribution. Unless there is already a good pipeline in progress the costs of the handling will significantly outweigh the benefits.
Donation of Services
Services donated may also be a type of gift in kind and recognition of services differs by country, but the same complexities exist. In Canada, a charity cannot provide a receipt for services rendered, and likely for good reasons. How do you value the services? How do you know the services provided were of good and acceptable quality? What about the ongoing value of the services? A charities goal is impact and impact mean an ongoing improvement, the bigger the improvement the bigger the impact. Services are harder to measure in terms of impact, especially ongoing. If someone wants to donate services, these would be treated as volunteer hours and those too are very important to a charity. You do not receive a charitable receipt for volunteer hours, but you will know you are having an impact using your talent to provide a service you can provide. Many charities quantify this impact in terms of social good will rather than donation, and that can be very effective.
Uses of in-kind donations
Goods received by charity may be used for the purpose of the programming/impact, they could be used for auction to raise money for the charity, the could be used as event or contest incentives which in turn raise money for the charity. Charities can be very resourceful when it comes to gifts in kind. When other larger gifts are given like land or securities charities can recognize these gifts as donations and can later leverage them for cash. Charities can also be selective on the gifts, so do your homework and ensure the gifts you want to give can be used and will be leveraged for impact.
Clothing donations
This is controversial, and many articles are already written on the donation of clothes. The bins for donation are in almost every town and support a variety of organizations These organizations to the most part sell these clothes at a fraction of they are worth, by the weight rather than the value. Instead a better use of donation of clothes is to give them directly to a charity that will sort through them, maybe they have a thrift store where more money will go directly into the operation of the thrift store and to the charity itself. Other charities are just a pass through, and likely not a lot of money is going directly to the charity of your choice. An alternative for your clothing donation is a local community group, maybe a women’s shelter or a homeless or refugee shelter. They always have specific needs, and you can be assured you will have the greatest impact for your generous donation. Another option is to post online or look online in a local community social group or go through a local church. You will be almost guaranteed to find someone in your community needing help, and they will be grateful for your support.
Conclusion
Gifts in kind donations can be incredibly generous when you consider the charity you are giving to, how the gifts are going to be used, the value of the gifts, how they will or could be distributed but most importantly consider the impact they will have today, tomorrow and in the future. Charitable giving is about having an impact, and whether you give time, talent or treasure charitable organizations are incredibly grateful for your gifts. Look for charities aligned with the impact you want to have an be a high impact philanthropist.
