Do Donations Count as Income?
Donations are gifts that individuals or organizations make to a business or organization, often a nonprofit organization. Although the money is a gift, the organization must properly account for it and list it as some type of revenue. In many cases, the organization must count donations as income, but details can depend on particular categories. A nonprofit organization does not violate its nonprofit status by counting donations as income, although some may want to count part of the donation as capital as well.
Donations and income do share some similarities. Organizations receive both to pay for core activities and typically receive these from individuals or from other organizations. However, organizations should not always count donations as income. They should classify such money as public support revenue, with a percentage accounted for through the organization's tax-exempt status. If control over the donation is absolute and the organization can reliably measure it, they should then count the rest as income.
Many organizations must account for asset donations as well as cash donations. Asset donations do not count as income unless the organization turns around and sells them. Instead, the organization assesses the value based on the fair market value of the asset and adds this to the business books. The organization still counts the donation as a gift, but accounts for it as a capital increase rather than as additional income.
A key to accounting for donations is to identify the direct benefit of the donation. This is a good indication of where the organization should allocate donation funds when accounting for the donation. For example, an organization should include donations for a building project or other specific project as an entry for revenues dedicated to that project. This also means that the organization will not enter many funds from donations as general donation income.
In some cases, nonprofit organizations that function as a club or other type of membership group require membership dues or other fees from the individuals who join the group. In general, the organization counts membership income as donations. However, if members receive anything of value for their fee, such as special item, product or service, then the organization must account for the value of this as earned income. The rest of the fee counts as a donation.