When you think about donating to a charity, you may think about donating money. But there’s another type of donation you may not be aware of — gifts-in-kind.

What are gifts-in-kind?

They are any non-cash donation from individuals and businesses to a charity. Common examples are food, clothing, prescription drugs, equipment and medical supplies.

How are gifts-in-kind used?

Charities give the products directly to those in need or to other charities for redistribution.

Are charities required to report gifts-in-kind like they report cash donations?

Charities are required to report their donations and program expenses on filings with the IRS (Form 990) and state agencies. Schedule M of the Form 990 contains information about gifts-in-kind. The Form 990 and/or financial reports should be available from the charity, online with your state, or at guidestar.org.

But not all charities accurately report the value of gifts-in-kind.

How could false reporting of gifts-in-kind affect potential donors like me?

A charity might mark-up the value of goods to make their organization appear more financially successful than it really is. This helps the organization hide high fundraising and administrative costs, since they then appear to be a smaller percent of overall expenses than they actually are. This may falsely increase an organization’s ranking by charity watchdogs.

Is there any way to effectively measure the legitimacy of a charity?

When used and reported as intended, gifts-in-kind can be an important part of a charity’s programs. Worthy causes get much needed supplies, donors may get a tax deduction, and items that might otherwise be destroyed or discarded are put to good use. Charity watchdog groups, like the Better Business Bureau's (BBB) Wise Giving Alliance, Charity Navigator, Charity Watch, and GuideStar, say you can measure an organization by the way it spends its cash. Cash typically comes directly from individual donors. If a charity is using gifts-in-kind to inflate its operations and then spends most of its cash to pay executives or cover operating expenses, this should raise red flags, and you may want to consider donating to a different organization.

For more on the questions to ask and for a list of groups that can help you research a charity, go to Charity Scams.