Charitable Giving of Commodities
Gifts of Grain
If you’re a charitable-minded farmer, consider donating grain to your favorite charity. The tax advantages of donating commodities far outweigh those of a cash contribution. It could mean hundreds or thousands of dollars in tax savings.
When a farmer sells grain and donates the proceeds to a charitable organization, the income from the sale is ordinary, subject to self-employment tax and the donation is deductible if the farmer itemizes. The standard deduction for 2022 is $25,900 for joint filers, so itemized deductions must exceed that amount in order to benefit. When farmers donate a commodity (grain or cattle), they simply do not recognize any revenue for the amount gifted. This preserves the charitable deduction by reducing taxable income from the farm. All expenses related to growing the commodity are still deductible.
The key to making this work is the farmer must ensure the commodity is transferred to the charity and that organization decides when to sell. If the commodity is considered sold to the farmer in any capacity, they must pick up the income.
Eligible farmers must be the producer and owner of the commodity and use the cash method of accounting. Landlords do not qualify. Corporations and partnerships can also make commodity contributions to charitable organizations.
Farmers Joe and Janet take their grain to the local elevator at harvest. They decide they want to gift 500 bushels to their church, so they call the elevator and have them transfer those bushels from Joe and Janet to their church’s name. Then Joe and Janet notify their church that there are now 500 bushels of grain in the church’s name sitting at the elevator. At that point, the church gets to decide when to sell the grain and will contact the elevator directly to do that. If those 500 bushels were worth $5.00 and depending on their tax bracket, Joe and Janet could see federal tax savings of almost $900.
If you want more information or have questions on maximizing tax savings from commodity gifting, please get in touch with an Adams Brown tax advisor.