October 28, 2015
If you are planning to contribute to charitable organizations this holiday season, consider gifting grain rather than giving cash, suggests Rebecca Longcrow, an attorney with Thompson Law, Sioux Falls, S.D.
Gifting grain can reduce your taxes.
"Several charitable organizations accept gifts of grain. For example, if you want to make a gift to your alma mater, several Midwestern universities and colleges accept gifts of grain and allow you to direct how the gift may be used, such as directing that the gift be used in support of agricultural research and education. Many local community foundations also accept gifts of grain. You could either choose to contribute to existing community funds or create a fund of your own to fulfill your specific philanthropic goals. Several churches also accept gifts of grain, which allows you a unique way to tithe after harvest," she says.
Donating grain to charitable organization can be a good way to provide aid and, in some cases, reduce your taxes.
Contact the organization prior to making a gift of grain to make sure they are able to accept the donation.
Four facts from Longcrow about gifting grain are:
1) Making a charitable gift of grain provides positive tax results for the donor. Gifting grain generally results in a lower adjusted gross income for the donor because the sale of the gifted grain will not be reported as income on the donor's income tax return. Reduced taxable income can potentially lessen the amount of income tax and self-employment tax owed by the donor. The donor may be able to deduct the production costs associated with growing the donated grain. Tax advantages generally apply to those donors who are active producers.
2) Landlords who receive grain under a crop share arrangement may also gift their grain to a charitable organization, but such a donor will likely be limited to claiming a charitable deduction for the gift, if the donor itemizes his or her deductions.
3) When making a gift of grain to a charitable organization, documentation is important. To receive the tax advantages, the donor needs to be able to show that they gave up "dominion and control" over the grain. The donor should present a letter to the charity that describes the commodity and the quantity being gifted. The letter should also indicate the name and contact information of the elevator where the donor will deliver the grain. The charitable organization will then be able to sell the commodity and receive a check from the elevator. Many organizations have standard forms that can be used to document the gift.
4) You can also gift grain to family members. Under the current tax laws, each person can gift $14,000 per year per person without needing to file a gift tax return. Gifting grain allows a donor who may otherwise be strapped for cash to take advantage of this annual exclusion gifting. Tax benefits also apply. The family member who receives the grain will pay income tax when the grain is sold, but will not likely be required to pay self-employment tax. For farmers who are in a higher income tax bracket, this strategy allows the farmer to shift some income to children or other family members who may be in a lower tax bracket. However, for young children, the donor should be aware of the "Kiddie Tax," which will make the gift taxable at the parent's tax rate rather than the child's tax rate. The donor's ability to deduct the production costs of growing the grain will depend on when the gift is made. Consult your tax preparer prior to making the gift to seek advice on the timing of the gift and potential tax benefits.
Source: Thompson Law
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