Get a Deduction for Donation of Raised Farm Products

Most farmers file tax returns using the cash method of accounting.  This method allows the farmer to deduct all of their farm expenses as incurred and if they gift any of their farm products to charity such as grain, there is no tax cost to deduct.  However, there is a special provision in the Tax Code that allows farmers to donate farm products to certain charities such as food banks.  This provision allows the farmer to deduct twice the tax cost of the product donated.  Normally two times zero is still zero so a farmer might think there is no deduction available.

However, the provision allows the farmer to use cost equal to 25% of the fair market value of the product donated.  Two times 25% is 50% of the FMV which equals their donation.  Let’s look at an example:

Assume Farmer Winesap sells apples at a farmer’s market.  At the end of the day, he has two boxes of Honeycrisp apples left over.  He elects to donate these to the local food bank.  The value of each box of apples is $30.  His donation amount is now $30 ($60 X 25% X 2).  If he had donated them to another charity that did not qualify, his donation would be zero.

There are some restrictions on the total amount that you can deduct, but for most farmers, these restrictions would not apply.  If you sell a lot of produce such as vegetables or fruits, this may be worth checking out.  This would not apply to many grain farmers.

  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

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 partner with CliftonLarsonAllen in Yakima, 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. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

Comments

Paul – thanks so much for the blog information. I refer to it often – very informative. Related to this article – can you direct me to the code section that defines “certain charities”? We have local farmers that donate grain to charity auctions for the benefit of our local Catholic churches. I’m wondering if this would be a qualifying charity. Thanks for your help.

Comment relates to earlier post regarding new filing dates. Primarily concerned about the new requirement for filing of 1099 and W-2 forms. According to post, the due date will be 01-31-17 even if filing forms electronically. This is not practical, especially for small accounting firms. Is there any chance that this might be changed, even if until 02-15?

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