AUBURN, Ala. – Farmer’s markets, roadside stands and grocery stores are traditional ways producers sell and promote their products. While these ways are great outlets, farmers are starting to utilize other nontraditional ways. Sometimes, producers have extra produce that they cannot sell. Producers are able to donate their additional produce through charitable donation or “gleaning”. Gleaning has a unique history to it and there are references dating as far back as the Bible. There are several benefits when a farm decides to do this. The donated products go to those in need. It helps eliminate food waste. It fosters community development. In addition, farm operations now realize increased benefits.
Before 2016, donating these extra fruits and vegetables to a church or other charitable organizations had a limited business benefit. Now, because of a law change, farmers gain increased benefit when working with a qualified 501(c)(3) organizations.
However, producers must go through several steps to use the business advantages that come with donating extra produce.
- The food must meet typical federal, state and local laws and guidelines even though it may not be sellable because of age, appearance, freshness, etc
- A producer needs to receive a statement from the charitable organization indicating giving a description, date of donation, use of products, compliancy with federal donation and 501(c)(3) laws and that the organization’s books will be adequately maintained and available to the IRS upon request. This should not be an issue for most 501(c)3 organizations.
- Calculate several numbers related to the donated food.
Kevin Burkett, an Alabama Extension farm and agribusiness management regional agent, said that producers might want to receive help with this last step.
“Calculating these numbers can get a little tricky,” said Burkett. “Producers may want to contact their accountant or Extension office to receive help.”
The changes, made by the Internal Revenue Service, allows producers to determine a basis for the products that they donate. The basis for these items is determined by fair-market price. The rule states the basis of the donated product will be 25 percent of the product’s fair market value.
Burkett said that there is a limit to how much a producer can donate overall.
“A famer’s overall deduction is limited to 15 percent of the farm’s net income,” said Burkett. “For example, if a farm made $50,000 that year, they could not donate more than $7,500 or it will be carried over into future years.”
A farmer can claim the deduction for five years from the time they donated the items. This allows the farm to benefit in future years if the donation exceeded the limit or the farm did not have income the year of donation.
Producers still need to determine if itemizing their deductions or taking the standard deduction is most beneficial to them.
For more information, visit Alabama Extension online. Contact your county Extension office or Alabama Extension’s farm and agribusiness management team. The farm and agribusiness management team helps producers and agribusinesses run successful enterprises. They work with producers to develop and evaluate business plans and to design optimal risk and financial management strategies. The team assists beginning farmers in implementing successful business tactics. Providing tax education for farmers, as well as tax professionals, also will be a job description of the team. Find them online at http://www.aces.edu/directory/programAgentSearch.php?program=7.
Producers can also visit the IRS website for more information.Featured image by Ruslan Shramko/Shutterstock.com