Corporate Grain Gifts Better Than Cash
Many of our farmers are charitably minded and many of them operate as a C corporation. An individual can gift cash to a charity and deduct up to 50% of their adjusted gross income. Any excess is carried forward for five years.
However, a C corporation has a much lower limit. It can only deduct up to 10% of its “gross” income. Any excess is carried forward. We see some farm corporation tax returns each year that show this type of carry forward. However, if the corporation had gifted charity some grain instead of cash, the 10% limit would have effectively been eliminated.
For example, assume a farm corporation normally makes $50,000 per year. The farmer usually gifts $10,000 to a charity and does not want to personally make the gift. If it gives cash of $10,000 to the charity, it can only deduct $5,000 this year and the remainder carries forward to next year. But, if the farmer gives grain with zero basis to the charity, the corporation does not have a deduction, but is has reduced its taxable income by $10,000 since it did not sell the grain. There is no carry forward to worry about.
Unlike gifts to children, you can gift grain that was harvested in the current year. Also, most charities are set up to handle the sale of the grain. Once it is in their name, it is usually fairly easy to sell to the local elevator or co-op.
Therefore, if you operate as a C corporation and want to make gifts to a charity, do it in grain instead of cash.
Paul Neiffer, CPA
CliftonLarsonAllen, LLP
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
Really nice blog