By Brian E. Ravencraft, CPA, CGMA, Partner at Holbrook & Manter, CPAs
As the 2019 calendar draws to a close, thoughts of charitable giving may be on your mind. With recent new tax law changes enacted under the Tax Cut & Jobs Act, itemizing deductions (which includes charitable contributions) on individual tax returns, has resulted in higher standard deduction thresholds. Married filing jointly couples need more than $24,000 ($12,000 for a single taxpayer) in itemized deductions to take advantage of additional deductions against adjusted gross income.
For farmers that are below the thresholds (less than $24,0000 for itemized deductions of medical, state and local taxes, mortgage interest and charitable giving), charitable gifting in the form of grain may be more appealing than cash donations. The gifting of the grain is a reduction of farm income, while still taking advantage of the $24,000 of itemized deductions.
Here is what you will need to know as a farmer who wants to make a charitable gift before the end of 2019:
- The farmer can exclude the sale of the cash crop from income and deduct cost of growing the crop. You get no deduction for a charitable contribution.
- This option is available for cash basis farmers.
- Crop share landlords cannot gift grain. Their income is considered rental income and not a sale of grain.
- The farmer must give up what is called “dominion and control” of the commodity gifted. Thus, you must call your local coop or grain handler and transfer the bushels of grain from you name to the name of the charity.
- The transaction needs to be documented. For crops stored on the farm, a warehouse receipt or notarized letter of transfer of the crops need to exist.
- The charity assumes the risk after the transfer, including any storage, transportation, and marketing costs.
- The gift should be made from unsold crop inventory. No sale commitment can be made prior to the gift.
- Inform the charity that you have gifted the grain and provide them with appropriate contact information for the coop or grain handler so they can sell the grain.
- Finally, the farmer’s production expenses are deducted on the tax return (in the year paid), but not the sale of the gifted bushels. In lieu of getting to exclude the sale of grain from income, the farmer does not get to a charitable contribution as a itemized deduction (that would be double dipping).
So what are the tax savings of using this method to donate to charity?
- Federal income tax savings (up to 37%)
- The big one is self-employment taxes savings of 15.3%
- State income tax savings. In Ohio, you would save additional 3% if your farm income is above the small business income deduction of $250,000
- Taking advantage of both the standard itemized deduction amount of $24,000, plus reduction of farm income from gifting the grain.
You should always consult your tax advisor as it relates to your own tax situation and planning goals.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.HolbrookManter.com.