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Making a Charitable Contribution of Grain

Making a Charitable Contribution of Grain

Farmers might consider making a charitable contribution of grain, which can provide tax benefits.

There are some really good reasons for farmers to make charitable contributions of their farm products instead of cash. There is some paperwork involved, but the benefits of making a gift of corn instead of cash may be worth the effort according to University of Illinois Tax Specialist Gary Hoff.

"By giving the grain he is able to take a tax deduction for all of his production expenses," Hoff said. "He's going to be taking that on his Schedule F assuming he's an operating farmer and he's not going to report any income from that grain. Therefore it has the benefit of reducing his income tax, social security or self-employment tax liability and his state income taxes."

Essentially the gift comes out of pre-tax dollars and all the input cost still get to be taken off. But you can't just write a check. First you have to give up control of the grain or other commodity to protect yourself and be IRS compliant. It all requires a very specific paper trail.

"What you are trying to protect yourself from is in the event of an IRS audit that they don't say you had constructive receipt of that grain sale," Hoff said. "So by sending a letter you're saying charity I'm giving you x bushels of whatever the commodity is and here is where it is located on my farm and would you please send me a letter and tell me where you want that marketed and when you want it marketed. Now they have total control of that grain and it is no longer yours."

The charity should respond in writing with directions on when and where to sell the commodity. In this case say it is corn and the elevator would cut a check directly to the charity. That second part is important.

"Two things the IRS looks at: Did you have dominion and control of it? First letter says no. Secondly did you have constructive receipt of that grain? Could you have told the elevator I changed my mind just give me the money? No it was their grain," Hoff said. "Whereas if you just take grain to market and say please make a $5,000 check to my church, then it was really your money and you were giving them cash as opposed to grain." 

In this case cash is not king and the raw commodity is a more valuable gift.

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