By KATIE BORKOWSKI
With the harvest season beginning, farmers may be considering a grain donation to a diocesan entity – church, school or the Diocese of Sioux City in general.
Aaron Greteman, CPA, for Erpelding, Voigt & Co., LLP in Algona, pointed out the implications on charities of recent federal tax law changes – the most significant tax law changes in more than 30 years.
“One of those changes was to increase the standard deduction,” he said. “With that increase, fewer people will be able to itemize, so the taxable benefit of making donations may be reduced for a lot of tax payers. However, a grain producer would still receive a benefit for making a grain donation regardless of whether or not they itemize. “
“Grain producers are fortunate to have the ability to use commodities as an alternative to cash, and we encourage them to consider using this tax savings opportunity,” pointed out Diane Donnelly, diocesan director of finance.
For many farmers, a grain donation would “potentially lower the taxable farm income for the producer, since the sale of the grain will not be reported as income,” Donnelly added.
“However, the costs of producing the grain are deductible as business expenses on Form 1040, Schedule F,” she said. “As a result, this could reduce the federal income tax, state income tax, and self-employment tax.
Donnelly clarified, “The farmer will not be eligible for a federal or state itemized deduction for a charitable donation, but many farmers use the standard deduction in lieu of itemizing their deductions.”
How to donate
The first step for a farmer considering a grain donation is to consult a tax preparer prior to initiating a grain donation.
“Next, the farmer should notify the diocesan entity of their desire to donate grain and inform the business office of the name and location of the elevator where the grain will be delivered,” Donnelly said. “A grain transfer form will be given to the farmer.”
This form is to be completed by both the farmer and the grain elevator to document the type of grain and the number of bushels.
“This form will substantiate that a charitable donation of grain was made by the farmer and that the ownership of the grain was transferred from the farmer to the charity,” Donnelly explained.
The grain, she added, will then be transferred to the grain account of the diocesan entity at the grain elevator. The completed grain transfer form should then be sent to the charity. The authorized person at the parish or school – usually the pastor, principal or bookkeeper – would then need to communicate with the elevator to sell the grain. It is not recommended that the parish or school allow standing sell orders at the grain elevator. In some cases, the step of authorizing the sale would be skipped which is required.
“It is imperative that the farmer can substantiate that he or she has transferred ownership of the grain to the charity,” said Donnelly. “Guidelines for charitable gifts of grain are available at the business offices of the diocese, the parishes and the schools. These guidelines more fully explain the handling of donated grain.”
Donnelly acknowledged there have been instances when grain was “delivered to the elevator and the farmer told the elevator to sell the grain and send a check to the parish or school.”
“In these cases, the grain never changed ownership and does not qualify as a grain donation,” she said. “As always, we recommend that farmers consult with their professional tax or legal advisors to determine tax implications prior to making a grain donation.”
Greteman reminded donors about the state tax credit for Student Tuition Organizations that benefits the taxpayer and tuition assistance in diocesan schools.
“Taxpayers may also be able to make grain donations to the (MLTF) Monsignor Lafferty Tuition Foundation– an STO – which is a great benefit for the grain producer,” he said. “While the MLTF is full this year, donors should keep it in mind for 2019.”
MLTF will begin accepting donations, including grain and stock, on Jan. 1, 2019.
Editor’s note: This article is only a summary of this tax topic. Readers should consult with their Certified Public Accountant (CPA) or other registered tax professional before taking any action.