The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
The Advantage of Commodity Contributions
Jun 02, 2013
We had a reader ask the following question:
"Please comment on the tax ramifications of gifting farm commodities to a charitable foundation."
Many farmers have charitable intent, but in many cases their standard deduction ends up greater than their itemized deductions including their charitable donations. In these situations, the farmer can get an extra advantage by contributing grain or other farm commodities directly to the charity. With this direct gift, the farmer does not report any of the grain given as income and this eliminates self-employment tax on the amount of the gift and may reduce the income tax.
Farmer Bean normally write a check to his church each year for $10,000. He has no other itemized deductions and gets no federal tax benefit from the donation. For this year, he elects to give the church 1,500 bushels of corn. This reduces his farm income by $10,000 (reducing his income and self-employment tax) and is still entitled to deduct his standard deduction. Assuming he is in a 15% tax bracket, the gift of grain saves him about $3,000 in tax versus making a cash gift.
For farmers in higher tax brackets, an additional benefit of making commodity charity gifts is that it reduces the amount of adjusted gross income that may be subject to the new 3.8% net investment income tax or phase-out of itemized deductions and personal exemptions.
Care must be taken to make sure the gift is properly documented. There must be a physical transfer of the commodity to the charity and they must be in control of the disposition of the commodity including any fees and expenses.