Advantages of charitable contributions of farm commodities include:
- Income tax savings if the taxpayers would otherwise be standard deduction filers:
- The increased standard deduction has eliminated any tax advantage of charitable contributions for many farmers;
- A charitable contribution of unsold inventory removes the income before recognition, and avoids the need to claim a charitable itemized deduction;
Form 8283 (Non-cash charitable contributions) should not be filed, as Form 8283 is only required if the total deduction claimed exceeds $500.
- Self-employment social security taxes will decrease if unsold inventory is donated and Schedule F net income is below the self-employment tax maximums.
For 1998, self-employment income is taxed as follows:
- $74,066 net Schedule F earnings are subject to the OASDI rate;
- All Schedule F net earnings are subject to Medicare rate (2.9%).
A charitable contribution of unsold raised commodities is only effective if it constitutes inventory of an active farm proprietor or partner; a gift of unsold crop-share rents by a farm landlord would trigger taxation to the donor as an assignment of income.
The taxpayer must be a cash-basis farmer (an accrual-basis farmer receives no benefit from a charitable gift of raised commodities since income is reported as it is earned.
Contribute crop raised in a prior year (If current year’s crop is contributed, the costs of raising the crops are not allowed as Schedule F deductions, but rather are deducted as Schedule A contributions).
Segregate the transaction into two steps:
- Gift of the commodity to the charity, with evidence that title to the commodity was transferred to the charity; and
- Sale of the commodity by the charity.
The commodity must be zero-basis inventory in the hands of the donor, rather than commodity received as passive share rental income (to prevent assignment of income problem). [ << Previous ] [ Next >> ]
Listing # 308 |
