Gifting Grain
Still have last year's grain sitting in your bins? Use it as a tax planning strategy. Gifting that grain to a charity, non-profit, or the kids means you won’t have to pay income tax on the sale of the grain, and it reduces self-employment taxes. Depending on your state’s laws, there could be more benefits as well.
David Bau is an extension educator in agricultural business management at the University of Minnesota. He says gifting unsold grain left over from a prior year is the best strategy.
"That’s the best grain to give because they’ve already taken the expense. If they give this year’s crop before the end of the year, that causes them to have to not be able to take the deductions for the expenses for the crop, it would go with the gift you file to the kids," says Bau. "So, it’s better to gift grain outside of the year it’s produced for IRS rules and that way the farmer can take the deduction of the expense for the crop, and they avoid income by giving it away either to a charity or their kids."
Bau says the accountant doesn’t have to be involved because the gifted grain isn’t going to show up in your records.
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"Let’s just say I give each kid 1,000 bushels of corn. The 1,000 bushels goes to the elevator, I deliver it and put it in their name, and they sell it and they get the proceeds. That just came off my sale receipts, so I’ve lowered my taxable income by 2,000 bushels of corn," he says. "The accountant is never going to see that because those slips went in my kids’ names."
Keep in mind if the child is a dependent of the parents, the “kiddie tax” rules apply for unearned income. Grain value over $2,200 will be taxed at the parent’s top tax rate instead of the child’s.