Better Giving Through Gifts of Grain

One of the more unusual means of charitable gifting is the ability to donate the value of a crop to support a favorite cause. Although clearly limited to farmers and other agricultural producers, this gift underscores the variety of ways that charitable good can be generated beyond sending a nonprofit a check or a transfer of marketable securities.

For the unfamiliar, the process can seem cumbersome at first, but as long as several steps are taken in the proper order, a farmer is able to turn their harvest into a source of charitable good and a tax reduction.

Harvesting charitable gifts

Cash-Basis Accounting

The farmer involved in the gift must be a cash-basis farmer. This is an accounting practice typical of farmers. The practice involves having transactions recorded based on the flow of money:

• Income is recorded when the farmer actually receives the payment (cash/check/deposit) regardless of when the product was sold or services were rendered.

• Expenses are recorded when the farmer actually pays the cash, regardless of when the expense was incurred or the product/service was used.

Tax Impact

For a farmer making a gift of grain, they avoid reporting the value of the gifted grain, thereby reducing their overall taxable income. Yet the farmer can still benefit from deducting the cost of producing the gifted grain as a business expense.

The Steps Needed to Cultivate a Charitable Gift 

Documenting the steps is essential for the process to provide a tax reduction for the farmer. There must be proof of a clear transfer of ownership of the grain from the farmer to the charity before a sale of the grain occurs. This is known as “dominion and control.”

1. Notify the Charity: It is important for the farmer to notify the charity in advance before they attempt the gift. They will need to inform the nonprofit of the type of grain and quantity. In areas with a sizeable agricultural presence, the nonprofit may have a form for gifts of grain or other agricultural products, covering how the process is implemented.

   However, some nonprofits may not be experienced with this type of gift and be uncertain how to proceed. In those instances, a charitable giving consultant such as Generosity Nexus, can be brought in to help the process occur smoothly for both the charity and the donor.

   
   

2. Establish the Account: The charity will contact the grain elevator or farmer’s co-op that the farmer prefers and create an account in the nonprofit’s name.

   
   

3. Source: The gift of grain must come from the farmer’s unsold crop inventory with no prior sale commitment.

   
   

4. Ownership Transfer: When the farmer delivers the grain to the grain elevator or farmer’s co-op, the farmer must order that the designated bushels are credited to the charity’s account. The warehouse receipt or scale ticket must show that the charity is the owner of the grain. This is a critical step. Failure for this to occur will negate the tax reduction value to the farmer. The farmer must not sell the grain first and then donate the cash proceeds.

   
   

5. Charity Takes Control: Upon transfer of the grain, the charity becomes the owner of the commodity and is responsible for its storage, marketing and future sale. It is the responsibility of the charity,not the farmer, to instruct the elevator or co-op as to when to sell the grain.

   
   

6. Documentation of a Charitable Gift: The charity will send the farmer a thank you acknowledgement confirming the receipt of the grain and the amount of the commodity received. This documentation is used by the farmer for tax purposes.

Conclusion

For some, the thought of gifts of grain to charity is unfamiliar land. However, the practice is well-established across many parts of the country. One charity reported that over a 3-year period, they raised over $3 million from gifts of agricultural commodities. For those uncertain on how to proceed, relying on the expertise of Generosity Nexus is a start. We make the process easy to understand for both the donor and charity.

Don’t hesitate to schedule an appointment to learn more about how we can help you.