Tracking Donated Goods: Nonprofit Inventory Management Tools

Guest post by ThriftCart

Picture this: Thanks to your nonprofit’s recent marketing efforts, you receive an influx of donated goods to support your operations and programs. While your team is incredibly grateful to your donors, you find it challenging to keep track of all the items. As a result, you overstock some products and run out of others. You even let some perishable goods slip through the cracks until their expiration dates are long past.

Accepting non-monetary (or in-kind) donations can significantly free up your nonprofit’s budget and provide your organization with the resources to expand its community impact. Without tools and procedures for managing these donated goods, however, you dilute their impact and risk letting the generosity of your donors go to waste.

Organizing, tracking, and using in-kind donations doesn’t have to be complicated or intensive. Let’s explore what inventory management software is and how it can help your nonprofit seamlessly incorporate donated goods into your mission-critical activities.

What is inventory management software?

Typically included as part of a point of sale (POS) system, inventory management tools provide a clear and accurate bird’s eye view of your nonprofit’s inventory. According to ThriftCart, a cloud-based inventory solution allows your team to monitor stock levels from anywhere in real time, so you’re always updated on what’s coming in and out.

Why do nonprofits need inventory management tools?

Nonprofits typically accept and use donated goods for various purposes, from stocking a thrift store to providing high-quality items at an auction. You may have a highly organized team, but without the right tools, managing your organization’s inventory can cut into your already limited time and energy.

State-of-the-art inventory management software allows you to:

• Enhance efficiency. Inventory tools provide an easy and consistent workflow for your whole team — even volunteers — to follow, with minimal training required. Barcode and labeling systems enable you to sort and process items quickly, reducing human error.

• Minimize waste. With precise tools for tracking donated goods as they come in, you avoid misplacing or completely losing track of them in your inventory. As a result, you can put all contributions to their best use, whether you’re distributing food items well before they expire or providing winter clothing to constituents.

• Improve donor engagement. While donors don’t expect anything in return when they contribute items to your nonprofit, they deserve a “thank you” at the very least. Reliable tools for generating receipts and monitoring inventory allow you to follow up with the right donors at the right time and communicate the specific impact of their generosity.

Plus, if your nonprofit runs a social enterprise or thrift store to generate more funds, you probably stock your inventory with donated goods. Inventory management software makes it easy to log various items, their conditions, and repeat donations all in one place. These centralized capabilities keep your entire team on the same page when optimizing inventory, managing finances, and interacting with donors and customers.

No matter what you’re doing, using inventory management software enables you to focus less on manual administrative tasks and more on furthering your mission.

What inventory management features do nonprofits need?

At their most basic, inventory management solutions facilitate the process of monitoring and updating your nonprofit’s inventory. However, the top software solutions on the market come equipped with additional features for streamlining your donation tracking, such as:

1. Donation pickup

To secure more in-kind donations from both individuals and companies with a strong focus on corporate social responsibility (CSR), your nonprofit might offer scheduled pickup services. Look for inventory management software that gives you the ability to:

• Set pickup zones.

• Optimize pickup routes to conserve fuel.

• Make pickup reminder calls.

• Request item photos from donors.

At the same time, it should be effortless for donors to schedule a dropoff or pickup time with your organization online.

2. Real-time inventory syncing

For nonprofits that run physical and online storefronts, it can be challenging to synchronize new items and purchases promptly and precisely. A comprehensive inventory management solution provides real-time tracking that instantly updates your inventory so your team can avoid the stress of accidentally selling an item that is no longer in stock.

Plus, your system should automatically log online orders so you can remove items from your physical shelves if necessary.

3. Donor management

Inventory management is about more than the donated goods your organization receives. Some solutions come with tools for creating a convenient and rewarding experience for donors, allowing you to:

• Track donor information and interactions.

• Monitor repeat donations and thank these donors accordingly.

• Automate personalized emails and text messages.

• Give donors the option to choose between printed receipts or eReceipts.

By investing in donor retention and recognition, you build lasting relationships that you can rely on and boost your reputation in the community.

4. Reporting

A well-designed inventory management system streamlines your processes and helps you unlock new insights for future improvement. Your solution should have a built-in reporting hub that displays real-time data such as:

• Types of items donated

• Donation frequency

• Times of year with the highest donation volume

• Items sold

Your nonprofit can use this information to adjust marketing, staffing, and pricing strategies as needed. For example, if you notice a certain type of item selling well, you might increase the price to generate more revenue to power your mission. If another product appears to be falling out of favor with customers, you might temporarily stop accepting these goods as donations to avoid overstocking.

Inventory management tools can revolutionize how your nonprofit handles and follows up on donated goods. However, you must first find the right solution for your needs. As with any fundraising software, Double the Donation recommends creating a list of must-have features, consulting online reviews, and booking demos to hone in on the right choice for your organization.

Once you’ve made your selection, take the time to train your team and create a simple guidebook for using the software. With a strong foundation in place, you’ll be well on your way to making your inventory management processes more accurate and efficient than ever before.

In-Kind Donations and Tax Deductions 101 | DonationMatch

Please note that the following article is not meant to be taken as tax or financial advice. Everyone's situation is different, and your tax advisor should ultimately be consulted before making decisions.

To encourage the support of social betterment programs and charitable organizations, the U.S. government incentivizes nonprofits, businesses, and individuals alike with unique tax benefits. For qualified 501(c)(3) organizations, this means income tax exemption. And for donors and companies that support these charities, deductions on federal income taxes are available!

However, actually calculating your tax deductions, especially for in-kind donations, can be a bit of a challenge. From reporting the market value of your contributions to differentiating what is and isn’t tax-deductible, there are multiple factors to take into consideration.

To lend a hand, we’ve compiled this simple guide to navigating tax deductions for in-kind donations. We’ll cover:

• Charitable Gifts: In-Kind vs Monetary Donations

• FAQs: The Deductibility of In-Kind Donations

• 3 Tips to Save Money on Your In-Kind Donation Tax Reporting

Maybe you feel a personal obligation to support nonprofits that champion missions close to your heart. Or, your in-kind giving may be more strategic—donating helps businesses positively market their brand and increase customer loyalty. 

Whatever your reason and whoever you may be, these insights can enable you to make the most of your in-kind contributions and save revenue. Let’s dive in.

Charitable Gifts: In-Kind vs Monetary Donations

Tax-deductible donations are typically gifts contributed to organizations that, in the U.S., the IRS recognizes as “exempt organizations.” These contributions can take a variety of forms, from money to products and services. 

All of these methods of charitable giving are potentially eligible for tax deductions, but they must meet certain criteria. For example, your donations:

• Cannot be made out to political organizations, candidates, or campaigns

• Cannot be made in return for benefits, such as event access, that exceed the fair market value of your contributions

• Must be made out to officially registered or recognized tax-exempt organizations

Contributions to registered 501(c)(3) organizations are potentially tax- deductible, based on your filing entity’s tax situation, but they aren’t the only organizations that qualify. If you’re unsure whether an organization has 501(c)(3) status, you can always take a look at the Tax Exempt Organization Search from the IRS.

After your donations meet these basic requirements, you can begin considering how to calculate and report them for tax purposes. This is where monetary and in-kind contributions start to differ.

Reporting Monetary Donations for Tax Deductions

For cash, checks, and other monetary donations, the process is more straightforward. This is because your cash gifts already have an explicit value. A dollar is a dollar. 

However, from one-time cash donations to donated products to matched employee gifts, you should keep track of all charitable contributions throughout the year. 

Maintain organized receipts of your donations, such as bank records or written acknowledgments from the nonprofits that receive your donations. When the time comes for reporting, the forms that you fill out will depend on whether or not you are filing as a business, and how your business is structured. For example:

• Individuals and sole proprietors attach donation receipts to Form 1040, Schedule A; Individuals are subject to a $300 per-person limit before they must itemize deductions while proprietors itemize deductions immediately

• Partnerships, S Corporations, and pass-through entities attach receipts to personal returns (Form 1040, Schedule A), with deductions processed as business losses

• C Corporations attach receipts to Form 1040, Schedule C, deducting donations from federal income tax returns

For more information on how you or your business would report charitable contributions, check Tax Topic No. 506 from the IRS.

Reporting In-Kind Donations for Tax Deductions

For in-kind contributions, companies typically can choose to write off products provided to charitable events or programs as either a marketing expense or charitable donation, whichever is easier or more advantageous. For example, classifying items as donations can help when wishing to communicate higher charitable giving totals.

There are a few more things to consider about in-kind donations in tax reporting. Namely, you need to determine the fair market value (FMV) of your donations. This is a calculation of the amount of money that a donated good—like a raffle fundraising basket full of your products or pallets of products—would reasonably be worth. 

After all, you can’t very well declare “auctioned vacation experience” on your tax returns. The donor is responsible for determining and giving the IRS a tangible, calculable value to factor into your tax deductions. For physical products, retail value could work. For services like spa treatments, the amount eligible to be written off may be different and closer to what providing the service actually costs the business, since personal time cannot be deducted, but employee wages can. To learn more about fair market value and how to determine the FMV of your in-kind gifts, reference IRS Publication 561. 

Additionally, if total tax deductions exceed $500, Form 8283 (for non-cash charitable contributions) is required in addition to Form 1040. Take a look at the section “How do I report my in-kind donations for tax purposes?” for more information about completing IRS Form 8283.

That being said, there are some exceptions to these standards! For example, special rules apply to select types of charitable donations, like inventory and similar items, pre-valued. 

But don’t be discouraged! There are hundreds of IRS resources that delve into the finer details of charitable donation reporting to help you make the most of in-kind donations.
Furthermore, if you’re a business professional managing a robust in-kind giving program, investing in a dedicated in-kind giving platform can streamline the entire vetting and reporting process through intuitive data tracking and record-keeping.

FAQs: The Deductibility of In-Kind Donations

If you’re still buzzing with questions about the tax deduction potential of in-kind donations, you’re not alone! Tax deduction reporting is a complex process with unique standards, rates, and rules to consider. Let’s tackle a few of the most frequently asked questions regarding tax deduction and charitable donations.

Can businesses deduct charitable contributions?

The simple answer is yes, businesses can absolutely deduct charitable contributions (both monetary and in-kind) from their taxes. While you will not receive a deduction for the donation of services, physical products and costs associated with donated experiences are eligible for deduction.

How much can you deduct for charitable contributions? 

The answer depends on several factors such as how you are filing, other deductions, and what kinds of donations are being reported. At the time of this article’s publishing, in-kind donations have a deduction ceiling of about 50% to 60% of gross adjusted income (AGI) for some businesses and most individuals.

Up to 100% of monetary donations can be potentially deducted, but actual allowances still depend on the classification of organizations you donate to and other factors on your own tax returns.

Take a look at the different kinds of deduction ceilings depending on how you file your taxes and to whom you donate:

• A 30% deduction ceiling is imposed for donations to certain veterans groups, cemeteries, fraternities, and private foundations

• If you receive something in return for your donation, like event access, you can only deduct the leftover fair market value after subtracting the value of what was received

• C corporations have a deduction ceiling between 10% to 25%, which they must affirmatively elect for each contribution

For more information on your specific access to in-kind tax deductibility, consult the IRS website and your own financial/tax advisor.

What in-kind donations are not tax-deductible?

If you want your in-kind gifts to qualify for tax deductions, you’ll have to do a bit of research in advance. For one thing, time and services do not typically qualify for a deduction. However, you can deduct additional expenses incurred during your hours of service—a great reason for businesses to promote employee volunteering!

Additionally, you’ll want to pay very close attention to the organizations you’re donating to. Once again, the following kinds of gifts are not eligible for tax deductions:

• Political gifts

• Donation amounts that are exceeded by the FMV of benefits you receive in return

• Donations to organizations that the IRS does not recognize as exempt

This is one of the reasons it’s so important to partner with the right nonprofit organizations!

To ensure that your business is sending its valuable in-kind contributions to qualified nonprofits, consider investing in DonationMatch’s turnkey donation matchmaking software. Our intuitive corporate giving platform allows you to be strategic about giving to nonprofits that are vetted and have upcoming event opportunities, maximizing your chances for fit with your goals and tax deductibility.

How do I report my in-kind donations for tax purposes?

As we mentioned, you will first determine the FMV of your donations. Remember, FMV describes the appraised cost of a non-cash charitable contribution. 

Once you’ve determined the value of your in-kind donations and collected the proper donation receipts, you will complete the appropriate form(s) to report it. 

In addition to Form 1040 (Schedule A for individuals, sole proprietors, and pass-through entities; Schedule C for most other businesses), you will be asked to fill out Form 8283. Fill out Section A if your tax-deductible value is between $500 to $5,000. For deductible values of single items exceeding $5,000, complete Section B and perform an official appraisal. For deductible values exceeding $500,000, fill out Section B and attach the appraisal to the tax form.

3 Tips to Save Money on Your In-Kind Donation Tax Reporting

Now that you’ve considered when, how, and under what circumstances your in-kind donations are eligible for tax deductions, it’s time to top off your understanding with a few best practices. Follow these essential in-kind donation tax tips to begin tackling the in-kind donation deduction process like an expert.

1. Record and document your contributions.

It’s impossible to stress this point enough—keeping organized records of your contributions is one of the first and most important steps to successfully securing tax deductions. 

While there are hundreds of resources to guide you through the tax reporting and form-filling process, none of them can do you much good if you’ve lost the details and proof of your charitable giving.

Be sure to practice good data hygiene with your personal or organizational records—remove outdated or unhelpful information, utilize effective database software, and perform data audits when necessary. 

2. VeT Organizations for fit and compliance. 

While you can technically donate to organizations, people, or causes that are not IRS-recognized 501(c)(3)’s, your potential ceiling for tax deductions may be significantly lower.

Furthermore, if you are a business owner, other advantages of corporate social responsibility—such as positive impressions, cause marketing, and increased customer loyalty— work best when you partner with qualified, well-respected nonprofits. 

To maximize the benefits of in-kind giving for your business (and your nonprofit partners!), take the time to verify the validity of your potential donation recipients’ 501(3)(c) status and the person reaching out to you to ensure they are legitimately connected with the organization. DonationMatch’s built-in vetting finds 10-20% of donation solicitations to be questionable or unauthorized, most commonly due to contacts soliciting donations without permission or lack of IRS-recognized exempt status.

3. Leverage dedicated software to manage in-kind donations.

From automating communications to simplifying data tracking, the right in-kind donation software can completely transform how you manage your in-kind giving processes. 

While individual people can get by with a simple spreadsheet of their occasional charitable giving, your business and its more robust, complex giving programs would greatly benefit from specialized software. 
In-kind giving platforms like DonationMatch are built to easily facilitate, record, and manage the in-kind giving process for companies that distribute thousands of donations a year. This means that everything from vetting and picking out the targeted nonprofit recipients of donations to printing out detailed reports of your contributions is made possible with just a few clicks.

Wrapping Up

Reporting tax deductions is an essential tax duty for countless businesses, yet it’s something surprisingly few people have a firm grasp of—and it’s no wonder why. Tax deduction reporting, and specifically reporting for charitable contributions, is a delicate process that takes careful attention. 

However, with the help of these insights and best practices, you should be far better equipped to tackle your in-kind donation programs, assess their tax deductibility, and make the most of your charitable giving!

Interested in learning more about in-kind donations, in-kind giving software, and tax filing best practices? Check out these additional resources:

• In-Kind Donations: Everything Your Organization Should Know. Beyond a tax deduction, there are far more ways that in-kind donations can benefit your organization. Dive into the fundamentals of in-kind giving, from business benefits to essential tools.

• 6 Nonprofit Tax Tips for Reporting In-Kind Donations. Learn more about the nonprofit side of the tax process with these expert tips for in-kind donation tax reporting.

• Corporate Giving Platform | Give Smarter with DonationMatch. Invest in corporate giving software that can not only help you organize your in-kind donation program, but completely optimize it. Give smarter with DonationMatch.