There are significant tax benefits for a farmer to donate grain directly to a district or church rather than selling the grain himself and then donating the cash. The donation of grain reduces the income that is reported on Schedule F, which gives relief from self-employment tax and state income tax. Whereas, a donation of cash can only be considered a deduction if the individual itemizes deductions on the tax return, and there is no relief from self-employment tax or state income tax.
To insure the farmer gets the desired tax results they should follow the following steps:
- Present a letter to the district/local church describing the commodity and the quantity being contributed.
- The letter should ask the district or local church where and when they want the commodity delivered. The district or local church can then sell the commodity and receive a check from the place of delivery.
- Keep a copy of the letter.
- Make sure to get a receipt from the district/local church for the amount of the donation.
- Do not report the donation on schedule A. There is no additional deduction allowed since the tax benefit comes from deduction the production expenses and not reporting the sale on schedule F.
Another benefit of donating grain is that the donation can be made in the year of production or a later year. The only requirement is that control of the grain is given to the charitable organization.
This process is very easy and a win-win for both the farmer and the district or local church they want to bless. If you have any questions or would like The Wesleyan Church headquarters to assist in this process, please contact the General Treasurer/CFO Office at (317) 774-3941.