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Get a Deduction for Donation of Raised Farm Products

Published on: 13:48PM Oct 17, 2016

~~Most farmers file tax returns using the cash method of accounting.  This method allows the farmer to deduct all of their farm expenses as incurred and if they gift any of their farm products to charity such as grain, there is no tax cost to deduct.  However, there is a special provision in the Tax Code that allows farmers to donate farm products to certain charities such as food banks.  This provision allows the farmer to deduct twice the tax cost of the product donated.  Normally two times zero is still zero so a farmer might think there is no deduction available.

However, the provision allows the farmer to use cost equal to 25% of the fair market value of the product donated.  Two times 25% is 50% of the FMV which equals their donation.  Let's look at an example:

Assume Farmer Winesap sells apples at a farmer's market.  At the end of the day, he has two boxes of Honeycrisp apples left over.  He elects to donate these to the local food bank.  The value of each box of apples is $30.  His donation amount is now $30 ($60 X 25% X 2).  If he had donated them to another charity that did not qualify, his donation would be zero.

There are some restrictions on the total amount that you can deduct, but for most farmers, these restrictions would not apply.  If you sell a lot of produce such as vegetables or fruits, this may be worth checking out.  This would not apply to many grain farmers.