Dos and Don’ts of Charitable Donations

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Farm income rebounded slightly in 2021. With a limited number of new farm machinery available for purchase and some inputs not available, managing year-end income may be more difficult this year for farmers. One option for managing income is charitable giving.

To be tax deductible, contributions must be paid to a qualified organization. There are several types of qualified organizations identified by the IRS, but the most common charities for farmers are churches and nonprofit corporations or foundations.

When you contribute to a non-profit organization, it is important to make sure that the contribution will be deductible. Not all non-profit organizations are qualified organizations. All churches and religious organizations are qualified organizations.

Some farmers will donate grain to charity, notifying the elevator as it is unloaded. The charity can then ask the elevator to sell the grain and will receive the income. By donating the grain, the farmer is not reporting the grain as income. The farmer is still able to deduct any expenses used to produce the crop.

However, the farmer also cannot use the grain as a charitable deduction (it would be a double deduction). In order to offer the grain, it is important that the farmer does not sell the grain on his behalf. If the farmer sells the grain and then pays the proceeds to the charity, the income must be reported as income – then the contribution is a deduction.

Charitable deductions are not unlimited and are generally limited to 60% of adjusted gross income for individuals. Additionally, sharecropping owners are not eligible, as their share of the grain is considered rent and must be declared even if grain is offered. As usual, there are exceptions and nuances to the giving rules, so be sure to speak to your accountant before implementing a giving plan.

Some people want to make charitable contributions but do not know to whom the contribution should be made. We often hear reports from charities where the leaders take most of the money, or a small portion of the money is actually used for charitable purposes. There are organizations that monitor and evaluate charities. A quick internet search is enough to find the notes.

Before making a donation to an organization, it is a good idea to research that organization to determine how much of the donation will actually go towards service delivery. For example, according to a rating service, there are more than 400 charities with the name “National Police”. Some organizations have scores of 100 out of 100, while at least one has a score of 3 out of 100. It is wise to do your research to ensure that your donation is used wisely and not wasted.

Charitable giving is a great way to manage income while supporting worthy causes. Make sure that your contribution will be deductible by verifying that the selected organization is a qualified organization. Plus, if you’re not fully aware of your potential charity, do your research and make sure your donation is well spent. Finally, consult your tax professional to plan the best charity course for you.

Moore is a lawyer with Wright & Moore Law Co. LPA. Contact him at 740-990-0751 or [email protected].


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