What is in this article?:
- Crop donations can bring big tax savings
- Full dominion and control
- Farmers facing a higher-income 2014 in need of tax-saving strategies should consult their tax advisor on the use of the donated crop strategy because of the significant tax savings that can result.
There are substantial tax advantages in making a gift of crops that do not exist with the traditional type of charitable donation made with using a check or cash.
For example, Larry and Francine operate their family farm. During 2014, they gave a total of $5,000 to their local church. This amount was given to the church in the form of weekly checks. In order to obtain any tax benefit from the $5,000 donation, they must itemize their deductions for the year instead of claiming the standard deduction.
For 2014, the standard deduction is $12,400 for a couple filing jointly. Larry and Francine will need a substantial amount of other itemized deductions in order to make it worthwhile to itemize their deductions rather than claim the standard deduction. Generally, if they don't itemize, there will not be any tax benefit from the usual cash-or-check $5,000 charitable donation.
However, if Larry and Francine instead give the church a gift of crops with a value of $5,000, the following advantages may exist:
- The value of the donated crops is not included on Schedule F
- The expenses associated with the production of the donated crops are deductible on Schedule F
- There are no federal or state income taxes paid on the value of the donated crops
- There is no self-employment tax paid on the value of the donated crops
- Yield records are not affected by the donation
With a crop donation, tax savings from the donated crops will still exist whether Larry and Francine choose to itemize deductions for the year or claim the standard deduction. If it isn't worth itemizing deductions in 2014, Larry and Francine can claim the standard deduction of $12,400 and still obtain all of the tax advantages of the donated crops.
In addition, with self-employment taxes now at 15.3 percent, the overall tax savings from donated crops can be substantially higher than the tax savings that results from the ordinary cash-or-check type of donation, which generally does not provide a self-employment tax savings.