Is your head spinning from trying to understand fair market value for your nonprofit? Getting it right is crucial, but it isn’t always easy to pin down. Don’t worry — you’re not alone! In this article, we’ll cover everything you need to know about fair market value when it comes to nonprofit donations.
Understanding fair market value (FMV) and how it relates to in-kind donations and those where donors receive something in return is crucial to providing your donors with accurate documentation they can use when doing their taxes.
In this article, we’ll outline how to effectively manage FMV at your nonprofit. We’ll also show you two ways you can use Donorbox to make communicating FMV to your donors even easier.
Fair market value refers to the price an item is worth if it were to be sold in a fair market. In other words, it’s the amount a buyer and seller would agree on in a transaction with that item.
For nonprofits, this term is applicable in two areas:
In-kind donations are gifts of items, property, and services. In this case, FMV refers to the amount the donated asset is worth in a fair market.
For example, a donor gives five computers to a nonprofit that needs to update its administrative technology. The fair market value of those computers is $5,000, so the total value of the donation — and the amount the donor can deduct from their taxes — is $5,000.
Donors should receive a donation receipt just as they would any other donation. Their receipt should describe both the items donated and the FMV of those items.
If donors receive any goods or services in return for their gifts (other than intangible religious benefits), the FMV of whatever they receive must be subtracted from the tax-deductible amount of the donation.
These transactions are referred to as quid pro quo contributions and require special documentation that includes the following:
This information is typically shared with donors via their donation receipt.
Here are a couple of example scenarios of this case:
Now that we know a little more about the scenarios where nonprofits must include fair market value, let’s look at how fair market value gets determined.
It’s important to note that the FMV of in-kind donations is typically provided by the donor. In our example above where the donor gave five computers to a nonprofit, that donor would determine the value of their gift by reviewing what retailers are currently selling those computers for. They would then relay that information to the nonprofit to get proper acknowledgment and documentation.
In the second case where donors receive goods or services in return for their gift, it’s the responsibility of the nonprofit to determine FMV.
For products, look to see what retailers are charging for similar items. If you’re hosting an event, determine your costs per person and go from there. Consider your venue, catering, and entertainment costs, then divide them by the number of expected attendees.
With Donorbox, you have the option to add a fair market value to the backend of your Donorbox donation forms to better track how much of each donation is tax deductible.
First, locate the campaign you wish to edit. Then click “Edit Campaign.” You can also create a new campaign by clicking the “+ New Campaign” button at the top of the Campaigns page.
Then, navigate to the “Amounts” page of your campaign editor.
From the Amounts page, you’ll see the option to toggle on Fair Market Value. Click this toggle and add the fair market value to each donation level.
Your Donorbox donation form allows your donors to give a custom amount. This encourages larger gifts and ultimately more giving from donors who don’t see their preferred donation amount already on your form.
When you enable fair market value for your donation amounts, any custom donations will receive the fair market value of the closest, lowest donation amount.
For example, let’s say you have donation levels that look like this:
If someone gives $15 through a custom donation amount, their gift will be given a fair market value of $3 to match the $10 preset donation amount. If they give $50, their gift will receive a $9 fair market value association.
To learn more about how to build your donation form, check out this blog.
Donorbox makes it easy for you to showcase the tax-deductible amount of your event tickets to encourage supporters to purchase more or at a higher level.
Check out how this organization added the tax-deductible amount to tickets for their awards and expo events. This showcased the tax benefit for each ticket level.
To add this to your event form, first go to your event on Donorbox. Click the pencil symbol to edit your event. Or click “+ New Event” to create a new event.
Once you’re in the event editor, locate the Ticket Types page on the editor menu. Here you’ll see your ticket types. Choose which one you’d like to edit, and click “Edit.”
From there, you can toggle on the option to make part of the ticket tax deductible. Once that toggle is clicked, you’ll be able to add the fair market value for this particular ticket type. The tool will then calculate the tax-deductible amount for you!
To learn more about how to create an event with Donorbox Events, check out this blog.
The term “fair market value” can feel daunting for nonprofits trying to stay on top of regulations and proper donor recognition. Ultimately, fair market value is only relevant for in-kind donations and those that receive something tangible in return.
It’s crucial to ensure your in-kind donors receive proper acknowledgment for their gifts. Adding the FMV of their donation, whether it’s goods or services, allows them to deduct the full and fair amount from their taxes. Proper documentation for these kinds of gifts will help you receive more in the future.
For donors receiving something in return for their gifts, showcasing the tax-deductible amount can encourage them to give more to receive even higher tax benefits. It’s a win-win situation for your donors — and for you!
We hope this blog has helped you understand how to add fair market value to your Donorbox donation and Events forms. If you need further assistance, please contact us at . For more nonprofit tips and tricks, check out the rest of our Nonprofit Blog. Subscribe to our newsletter to receive the best of the blog in your inbox every month!
Lindsey spent years wearing many hats in the nonprofit world. Whether she was helping arts nonprofits with their messaging and content, planning a fundraising gala, writing an NEA grant proposal, or running a membership program with over 400 members, she learned how to navigate – and appreciate! – the fast-paced world of fundraising. Now, she loves sharing those hard-earned lessons with the Donorbox community.
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Lindsey Baker Bower