Your pay day happens a few times a year, so why not gift on the same schedule? Producers have an opportunity to make contributions of raised commodities directly to a charitable organization. The fair market value of the gifted commodity is excluded from taxable income of the donor, resulting in the potential for significant federal, state and self-employment tax savings. The expenses to grow the commodities are still able to be deducted as an expense.
Guidelines to follow:
- The donor must be a cash basis farmer, who is actively engaged in a farming activity.
- The donor must be sure that commodities gifted are not collateral for a CCC loan or under a loan deficiency payment contract.
- Clear title to the commodity must pass to the charitable organization. When the donor delivers grain to the elevator, the producer must use the charity’s name on the assembly sheet or warehouse receipt.
- The assembly sheet or warehouse receipt should be delivered to the charitable organization with a letter indicating that the commodity has been donated and that the charity is now the owner of the commodity and may sell at any time.
- The charitable organization must direct the sale of the commodity. The charity must call the elevator and request the commodity to be sold.
The big benefit here is you still take all the expenses of your inputs, but don’t have to recognize the income from the sale of the commodity. You don’t get to deduct it as an itemized deduction as that would be double dipping, but reduced income, reduced SE tax and adjusted gross income are all wins.
Consult your tax adviser with questions. If you don’t have one call us for a free consultation.