It is almost that time of year again – harvest is nearly upon us! Harvest is the time when you reap what you have sown, and a bountiful harvest presents a unique opportunity for gift planning.
If you are making contributions to charitable organizations, or if you desire to start doing so, consider gifting grain rather than cash. 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 a grain, which allows you a unique way to tithe after harvest. It is a good idea to contact the organization prior to making a gift of grain to make sure they are able to accept the donation.
Making a charitable gift of grain also provides positive tax results for the donor. First, 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. Secondly, the donor may be able to deduct the production costs associated with growing the donated grain. The tax advantages described above generally apply to those donors who are active producers. 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.
When making a gift of grain to a charitable organization, documentation is important. In order to receive the tax advantages described above, the donor needs to be able to show that they gave up “dominion and control” over the grain. In order to prove that the donor has given 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.
Another gifting strategy you may want to consider after harvest is gifting 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.
Gifting grain to family members also presents tax benefits to the donor. The gift will lower the adjusted gross income of the donor, which in turn can potentially reduce the income tax and self-employment tax of the donor. 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.
If you plan to make a gift of grain, consult your tax preparer prior to making the gift to seek advice on the timing of the gift and potential tax benefits. Harvest is a rewarding time where the rewards of your hard work and commitment become tangible. In the same way, giving a gift from your grain harvest, whether to institutions, charities, or family members, can be tangibly rewarding to the recipient and donor, as well.
*As seen in Dakota Farmer
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