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Do’s and don’ts with charitable giving

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LIMITS: Charitable deductions are not unlimited and are usually limited to 60% of adjusted gross income for individuals.
Country Counsel: To be tax deductible, contributions must be made to a qualified organization.

Farm income has rebounded a bit in 2021. With limited new farm machinery available for purchase and some inputs unavailable, managing year-end income may be more of a challenge this year for farmers. One option to manage income is charitable giving.

To be tax deductible, contributions must be made to a qualified organization. There are several different kinds of qualified organizations identified by the IRS, but the most common charities for farmers are churches and nonprofit corporations or foundations. 

When contributing to a nonprofit organization, it is important to make sure the contribution will be deductible. Not all nonprofit organizations are qualified organizations. All churches and religious organizations are qualified organizations.

Some farmers will donate grain to a charity, letting the elevator know as it is unloaded. The charity can then instruct the elevator to sell the grain and will receive the income. By donating the grain, the farmer does not report the grain as income. The farmer is still able to deduct all the expenses used to produce the crop. 

However, the farmer does not also get to use the grain as a charitable deduction (that would be double-dipping). To gift the grain, it is important for the farmer not to sell the grain in his name. If the farmer sells the grain then contributes the sale proceeds to the charity, the income must be reported as income — then the contribution is a deduction.

Charitable deductions are not unlimited and are usually limited to 60% of adjusted gross income for individuals. Also, crop-share landlords are not eligible, as their share of the grain is considered rent and must be reported even if the grain is gifted. As usual, there are exceptions and nuances to gifting rules, so be sure to talk to your accountant before implementing a gifting plan.

Some people want to make charitable contributions but are not sure to whom the contribution should be made. We often hear reports of charities where the executives take most of the money, or little of the money is actually used for charitable purposes. There are organizations that monitor and rate charities. A quick internet search is all it takes to find the ratings. 

Before gifting to an organization, it is good to do some research on that organization to determine how much of the donation will actually go to providing services. For example, according to one rating service, there are more than 400 charities with “National Police” in their name.  Some organizations have 100-out-of-100 ratings, while at least one has a rating of 3 out of 100. It is wise to do some research to make sure your donation is used for good and not wasted.

Charitable giving is a good way to manage income while providing support to worthy causes. Be sure your contribution will be deductible by verifying that the selected organization is a qualified organization.  Also, if you are not fully familiar with your potential charity, do some research and make sure your donation will be well spent. Lastly, consult with your tax professional to plan the best charitable course for you.

Moore is an attorney with Wright & Moore Law Co. LPA. Contact him at 740-990-0751 or [email protected].

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