In-kind services are donations of professional labor or expertise given to an organization without any exchange of cash. They differ from a written check or a pallet of donated goods because the contribution is the work itself, performed by someone whose skills the organization would otherwise have to pay for. Nonprofits lean on these contributions to extend their budgets and to meet the matching requirements attached to many federal and foundation grants.
What Actually Qualifies
Not every hour a volunteer spends counts. Under generally accepted accounting principles, a contributed service is formally recognized on the books only when it meets three conditions at once:
- The work requires a specialized skill. GAAP names accounting, architecture, carpentry, electrical work, law, medicine, nursing, plumbing, and teaching as examples.
- The person doing the work actually possesses and practices that skill. A licensed electrician answering phones at a fundraiser doesn’t qualify, because the electrical expertise isn’t being used.
- The organization would have had to purchase the service if it hadn’t been donated.
There is a second route. If the service creates or enhances a nonfinancial asset the organization owns, it qualifies regardless of whether the provider holds a formal credential.
Work that falls outside these rules still has real value. Greeting visitors, sorting donations, and painting hallways can be described in narrative disclosures, but they cannot be booked as revenue.
Setting a Defensible Fair Market Value
The recorded value should reflect what the organization would have paid for the same work on the open market. The IRS defines fair market value as the price agreed upon between a willing buyer and willing seller, with neither forced to act and both aware of the relevant facts.1Internal Revenue Service. Publication 561 (12/2025), Determining the Value of Donated Property Three practical steps make that concept usable.
Start With the Provider’s Normal Rate
Ask the professional for a written statement of the hourly or project rate they charge paying clients. An attorney’s billing rate, a CPA’s audit fee, or an architect’s design rate is the most defensible starting point because it reflects what an unrelated client would actually pay.
Cross-Check Against Market Data
Compare that stated rate to published wage data for similar roles in the same region. The Bureau of Labor Statistics publishes Occupational Employment and Wage Statistics tables broken down by metro area and occupation, with median and percentile hourly wages for hundreds of jobs. A claimed rate well above the 90th percentile for the occupation locally will draw questions from an auditor. Rates that fall within a normal range for the profession and geography are easy to defend.
Document Before the Work Starts
Good documentation names the provider and their credentials, describes the work, states the agreed rate or project value, and includes a log of hours as they are worked. Federal grantmakers expect this same paper trail: forms capturing the date of service, service performed, and rate basis are standard for any organization using in-kind contributions as grant match.2National Endowment for the Arts. Sample In-Kind Contribution Forms Keeping records current avoids the scramble that happens when a funder asks for support months later.
How to Record It on the Books
Once a service meets the GAAP criteria and has a supportable value, it enters through a simultaneous debit and credit. The organization records the value as contribution revenue and, at the same time, records a matching expense. If the work enhances an asset, the value is capitalized instead. The net effect on the bottom line is zero, but the statements now reflect the true cost of running programs.
Omitting recognized contributed services understates both revenue and expenses, which distorts every ratio a stakeholder might calculate. A nonprofit that runs on $200,000 of pro bono legal and accounting work each year looks materially different from one that doesn’t, even if their cash positions match.
Each provider should also receive a written acknowledgment describing the service, the dates performed, and a good-faith value estimate. That letter creates a contemporaneous record supporting the financial statement entry and helps the provider with their own tax records.
Reporting on Form 990
A common misunderstanding: donated services are not reported on Schedule M. Schedule M covers noncash contributions of property, and the instructions specifically say not to include donations of services or the donated use of facilities, equipment, or materials.3Internal Revenue Service. 2025 Schedule M (Form 990) The $25,000 threshold that triggers Schedule M applies to donated property, not to contributed labor.4Internal Revenue Service. 2025 Instructions for Form 990
Contributed services can be described in the narrative at Form 990, Part III, line 4, which covers program service accomplishments. If the organization recognizes them as revenue under GAAP, those amounts flow through the financial statements filed with the return. Volunteer time cannot be reported as contributions on Schedule A, Parts II or III.5Internal Revenue Service. Form 990, Schedules A and B: Reporting Value of Volunteer Time
What the Person Donating Services Can Deduct
Professionals who donate their time often assume they can deduct the value of those hours. They cannot. The IRS is blunt: you cannot deduct the value of your time or services, including income lost while working as an unpaid volunteer.6Internal Revenue Service. Publication 526 (2025), Charitable Contributions A lawyer who donates 50 hours normally billed at $400 an hour does not get a $20,000 charitable deduction.
What the provider can deduct are unreimbursed out-of-pocket expenses directly connected to the donated work, incurred only because of the service, and not personal in nature:
- Driving expenses. Gas and oil for trips to and from the volunteer site, or a flat 14 cents per mile, plus parking and tolls.7Internal Revenue Service. 2026 Standard Mileage Rates
- Travel while away overnight. Airfare, lodging, and meals when the volunteer work requires an overnight stay, provided the trip has no significant personal vacation element.6Internal Revenue Service. Publication 526 (2025), Charitable Contributions
- Supplies. Unreimbursed office supplies, filing fees, postage, and similar costs incurred specifically for the donated work.
- Uniforms. The cost of buying and cleaning uniforms that aren’t suitable for everyday wear and that the organization requires during service.
Childcare that frees the volunteer up, general car maintenance and insurance, and costs paid on behalf of someone else who performed the service are not deductible.
Using In-Kind Services as Federal Grant Match
Many federal grants require the recipient to cover a percentage of project cost from non-federal sources. Third-party in-kind contributions, including donated professional services, can satisfy that match if they meet the standards in the Uniform Guidance at 2 CFR 200.306.8eCFR. 2 CFR 200.306 – Cost Sharing The contribution must be verifiable in your records, necessary and reasonable for the project, allowable under the grant’s cost principles, and not already counted toward a different federal award.
Valuation follows a hierarchy. If the volunteer’s skills match work your organization normally pays for, use your own internal pay rate for that role. If you don’t have an equivalent position, use rates consistent with what the local labor market pays for similar work. Reasonable fringe benefits can be included either way. When a third-party organization lends you an employee, the value includes that person’s regular pay, allowable fringe benefits, and the lending organization’s federally negotiated indirect cost rate.8eCFR. 2 CFR 200.306 – Cost Sharing
Documentation for grant match sits higher than for general bookkeeping. Federal agencies expect time logs, rate justifications tied to comparable positions, and records showing the contribution was made specifically for the grant-funded project. Sloppy tracking can produce disallowed costs and a demand to repay the federal share.
FLSA Limits on Who Can Volunteer
Before accepting donated labor, know the bright-line rule under the Fair Labor Standards Act: employees of for-profit private sector companies may not volunteer their services to their own employer.9U.S. Department of Labor. Fair Labor Standards Act Advisor – Volunteers A software company cannot have its developers “volunteer” weekend hours on a company project and treat it as an in-kind contribution. The FLSA treats that as a wage violation.
Public sector rules are more permissive. Individuals can generally volunteer for government agencies and community organizations. The exception: a public agency cannot let its own employees volunteer additional unpaid time doing the same type of work they’re already paid to perform.9U.S. Department of Labor. Fair Labor Standards Act Advisor – Volunteers A city parks employee can volunteer at a nonprofit food bank, but the parks department can’t accept that same worker’s unpaid Saturday shifts maintaining trails.
Nonprofits accepting donated professional services from outside volunteers generally don’t hit FLSA problems, because the provider doesn’t work for the receiving organization. The risk shows up when an organization’s own staff members start performing extra duties “as volunteers” that look like an extension of their paid role.
Put It in Writing
A short written agreement before the work begins protects both sides. It should cover the specific services to be performed, the expected time commitment, the agreed fair market value and how it was calculated, whether the provider carries professional liability insurance for this work, and who bears responsibility if the work product causes harm to a third party.
The liability piece matters more than most people realize. A CPA who errs on a pro bono audit or an architect whose donated design has a structural flaw still faces potential malpractice exposure. Whether the provider’s existing professional liability policy covers unpaid work varies by insurer and policy wording. Some policies cover only work “on behalf of the named insured,” which may not reach volunteer projects. Confirm coverage before the engagement starts.
The agreement also creates the documentation trail. It captures the provider’s credentials, the scope of work, and the valuation basis in one document an auditor or funder can review without reconstructing emails.