Use It Or Lose It: Charities that Limit Giving Options Limit Donations

A few weeks ago, I was approached by a charity with a donor who, at the end of 2021, had just retired from farming.  That means he has a harvested grain crop in the bin, which has yet to be sold to produce taxable income. But because he is no longer farming, he will not receive tax deductions this year for expenses such as seed, fertilizer, and fuel.

As a result, he will have a pile of taxable Ordinary Income to report for tax purposes when he sells the grain, with no offsetting deductions. He really doesn’t need the income this year because he sold some machinery. He would like to spread the grain profits out over his lifetime for tax and cash flow purposes.

I offered to help him set up a CGA funded with 45,000 bushels of corn. At a market price of about $6 per bushel for corn, that translates into about $270,000 of funding for a CGA. At his age (80), that will produce a 6.5% income ($17,500 per year) which will be taxed as Ordinary Income as he receives it annually. This means it will be taxed in a much lower bracket than if he had sold all the corn outright in a lump sum.

The donor was ecstatic at being able to repurpose his grain to produce a nice retirement income stream for himself while also creating a future legacy gift for one of his favorite charities. Farmers are traditionally “land rich and cash poor,” so this strategy really came in handy for him.

The unique thing about this case is that the farmer had been trying for eight months to work with another charity that accepted only cash and marketable securities. They had no clue how to fund a CGA or a CRT with grain, so he became very frustrated.

What’s my point? As Baby Boomers continue to retire, there are several charitable planning tools that can help them in their planning to solve problems and create substantial planned gifts for their favorite charities, rather than enhance the government’s coffers.

The charities that “get it” and have the capabilities to implement these charitable tools will flourish.

The ones that don’t will suffer.

Johnne Syverson, CFP, AEP, CAP, is the executive director of the Charitable Giving Resource Center.

 

Category: Sustainability

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