Contributions to charity are a highly favorable way to gain a deduction in tax at the end of the year. However, many taxpayers slip up when donating their assets.
Assets like stocks and mutual funds are deducted based on their current fair market value.
According to Andy Biebl in his article "Watch Charity Rules," best asset to gift to charity for tax purposes is property held over 12 months that will be taxed as capital gain. The charitable deduction of such property, like farmland, will be the value at the time of the gift, and must be determined by its appraisal value if it exceeds $5,000. These situations are carefully monitored, as aspects like date of appraisal, qualifications of appraiser, and appraisal state can greatly influence or even disqualify the deduction.
Donating tangible personal property triggers trickier tax rules. This deduction is calculated by its exempt function. For example, a taxpayer who donates artwork to a museum versus a hospital auction. The deduction at the museum would be greater because the museum would be able to secure an appraisal. The hospital, however, would only have a deduction that would be limited to its historical cost.
Farmers have a very easy to use strategy for gifting property that others may not, and that is gifting unsold grain. No appraisal is necessary. The farmer must deliver the grain in the name of the charity, and the charity must sell the grain in its name. In this instance the tax savings is in the fact the income from the sale of grain will not be shown in the farmer's income tax return. This is a better alternative than selling the grain and donating the cash from the sale to a charity. However, farmers must be careful in doing this, as certain government program payments and insurance are dependent on tracking yields, so you will want to speak with your attorney, crop insurance agent, and USDA-FSA agent to make sure you keep the records necessary to prove your yields.
If one wants to receive such deductions, it is important to understand the laws associated with them. Be sure to visit with your accountant or attorney regarding gifting strategies before implementing them.
Reference: Progressive Farmer (September 2017) “Watch Charity Rules” by Andy Biebl, p. 8 https://www.dtnpf.com/agriculture/web/ag/perspectives/columns/ask-the-taxman/article/2017/09/18/watch-charity-rules-2