Charitable acts are in full force during the holiday season and into the new year. But how can you make the most of those donated dollars?

Writing a check will not give you the most bang for your buck, says Jim Luzar, a Purdue Extension educator in Clay and Owen counties, Ind. Rather, you should be looking into the gift of grain.

Some background

In 2017, there was a federal tax law change that increased the standard itemized deduction threshold to $24,000 for a married couple filing jointly. It includes expenses such as medical costs over 7% of your adjusted gross income, deductible non-farm interest, charitable donations, and state and local income taxes.

“Many farms are not going to be itemizing,” Luzar says. “When you look at federal tax data, it suggests that only about 11% of taxpayers itemize deductions. Most take the standard deduction.”

The problem is that most farms will not meet that threshold to be able to itemize. Luzar shares an example with the following parameters:

Given these factors, your deductions would only total $14,000. This does not even come close to the threshold of $24,000. So, the farm will opt for using the higher standard deduction of $24,000.

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Make the most of giving

There is a way to make the most of your charitable contributions, however, by gifting grain.

“If you just make a check out for that donation and pay the community foundation — say, for a 4-H club or FFA chapter — you’re really not getting any benefit tax-wise,” Luzar explains. “You will use that $24,000 exemption for your standard deduction.”

Instead, Luzar shares that you can assign grain to an organization. Donating this way does not count toward that $24,000 threshold, and it gives you an additional tax break.

For example, if you give $5,000 in grain to an organization, you will get a $2,000 tax deduction on your federal return. Essentially, you would be gifting $5,000 for $3,000, Luzar says, because the grain donation is not included in your itemized deductions under that $24,000 umbrella.

Here is how this works. Since the income from donated grain is excluded from taxation, it could provide breaks on your federal income tax, self-employment tax and state/local tax. The break you get could amount to 40% of what you donated. So, a $2,000 tax break could accrue for a $5,000 donation made in grain.

How to give

Luzar says to contact the grain elevator and make an assignment to the organization of your choosing. Tell them how many bushels you would like to assign to that recipient. Then, contact the recipient and let them know where the assignment was made. There will be a separate ticket printed for the charitable organization, and they assume ownership of the grain.

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“You can’t just sell the grain and write the charitable entity a check,” Luzar adds. “That’s not the way it’s done. You must assign that grain, and that’s why it’s a gift of grain. This works with market cattle and market hogs, too.”

That organization also could choose to store the grain. Once you make the assignment, it is up to them to decide whether to sell or store. However, that recipient will likely sell the grain and give the elevator directions for where to send the check.

On your end, you will not report that grain that you donated on your Schedule F, your farm income and expense schedule, Luzar says. Income on Schedule F is subject to federal, state and local income tax. So, that is where you get a benefit of possible income tax savings from federal income tax, self-employment tax and state/local tax, totaling close to 40% of the gifted grain dollar amount.

Luzar recommends contacting your tax preparer now if you are interested in giving the gift of grain. He says they can help you sort through these details and make the most of your donation. Additionally, some business entity forms are excluded from using this tax strategy, so consult your tax preparer to discuss your options.

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