When it comes to preparing individual tax returns, many individuals wonder what kind of documentation they need to support their charitable contributions. First and foremost, to qualify for a charitable contribution deduction, a contribution must have been given to a qualified charitable organization. The Internal Revenue Service (IRS) website contains a link in to search for exempt organizations (https://www.irs.gov/charities-non-profits/search-for-charities). Donations given to directly to an individual in need are not considered a deductible contribution but instead are considered by the IRS to be personal gifts. Secondly, an individual can only deduct contributions if they are itemizing their individual tax return. Generally an individual may be able to deduct up to 50 percent of their adjusted gross income, however, there are limitations. Seek advice regarding your individual deduction limitations from a tax professional.
For some nonprofit organizations, contributions are a significant source of revenue. Proper accounting treatment for those contributions is key, which include tracking and monitoring restricted funds.
Nonprofits receive in-kind contributions that can range from professional services to inventory and advertising. Some nonprofits also receive the right to use and/or lease land and buildings for free or at a discounted rate. Most in-kind contributions are recognized at fair value when received; however, in-kind contributions of land and buildings have special considerations.
The contributed facilities should be recognized at fair value and discounted to net present value if the free/discounted period of use exceeds one year. Here we will be discussing the recognition of long-term free or discounted rent for the use of land and/or building.