15 May Gifts of Grain
By Brandy Swope
Most of us automatically think of giving cash when we are asked or led to support a cause. We want to challenge this traditional way of thinking and explain why giving grain may be a better option.
Let’s start by reviewing who can give grain. Anyone who has grain can give it! There is a difference though between active producers and those who are crop share landlords. Active producers will reap greater tax benefits from giving grain than will crop share landlords.
The next question is, “Why should I give grain instead of cash?” We will simplify this by listing the significant tax benefits for doing so.
- The proceeds that you would have gotten if you had sold the crop are not included in income.
- The input costs associated with growing the crop are still deductible.
- For those drawing Social Security, you can escape some tax on your Social Security benefits by lowering your AGI.
- For those farming in a C corporation, you now have limits on how much cash you can give. You cannot give more than 10% of your net income before the contribution. So let’s assume you do some aggressive tax planning and get your C corporation profit down to a break-even. In this scenario, your contribution would not be deductible because you have no income. Ten percent of 0 is 0. If your profit was $10,000 before the contribution, you would only be able to deduct $1,000. If you give grain, this 10% limit does not come into play at all thus not limiting your ability to give.
- Government payments are limited for some farmers who have too high of income. If you give grain, you are not including the proceeds in income thus lowering the income that is looked at for payment limitation purposes.
- Again, for those farmers who have high incomes, the government has imposed an additional 3.8% tax on certain types of income. The more grain proceeds we keep out of income, the lower your overall income is and the more likely you are to save this additional 3.8% tax.
Now that you can see the advantages of gifting grain as opposed to giving cash, you need to understand the proper steps for how to gift grain.
- Complete letter to charity notifying them that you are making a gift of grain.
- Deliver the grain to the elevator. Make sure the elevator documents that the grain is the charity’s and not yours by way of issuing a storage receipt made out to the charity. Send the storage receipt to the charity.
- The final step will be having the elevator write a check to the charity for the delivered bushels. Technically, this is the charity’s responsibility to request when they want payment.
*** It is important to note that you will want to have a document in place which spells out the number of bushels you gave away so that if FSA or crop insurance tries to tie out bushels sold with bushels produced, they will know why there is a difference. The letter referred to above, along with another internal document we have, will satisfy this requirement.
There are three important observations to remember. First, most of the time, active producers will achieve a greater tax advantage by giving grain rather than cash. Second, be sure that you fill out the correct paperwork and do the appropriate steps at the elevator to prove that you are giving grain, not just a storage receipt which can be construed as a cash equivalent. And third, have that same paperwork in place to prove how many bushels you gave away so that if anyone questions production vs. sales, you have a reconciliation of the two. If you decide you want to gift grain and have further questions, please let one of our accountants help you.