As a rancher, farmer, business owner, or individual, understanding the different ways to give can help you make informed decisions about what makes sense for your situation. Recent tax code changes mean fewer taxpayers benefit from charitable cash donations the way they used to. Depending on your age and what you own, there are strategies available that work through income exclusion rather than deductions. For most people, the tax implications of cash donations differ significantly from other giving methods. This is why understanding all available approaches can be helpful when deciding what might work for you.
The Strategies: Understanding Tax Efficiency
There are several ways to approach charitable giving, each with different tax implications.
Qualified Charitable Distributions (QCDs) - Available at RMD Age (73+)
If you're 70 ½ or older and have a traditional IRA, a QCD is available as an option. With a QCD, you can direct money straight from your IRA custodian to a qualified charity. The money never appears as your income and is excluded from federal and state taxes; no itemizing is required, and no deduction is claimed. The income is simply excluded from your tax return.
Many people aged 70 1/2 have this option available to them, though eligibility depends on individual circumstances.
Commodity Gifts - Available to Agricultural Producers
When you donate a commodity you've produced, your operation doesn't realize that income. It's excluded from your federal income tax, your state income tax, and self-employment taxes (if you are self-employed). The commodity never becomes taxable income on your return.
Compare this to selling a calf for $3,000 and donating the proceeds: you'd have $3,000 of taxable income. Gifting the calf before it's sold means that commodity was never part of your realized revenue.
For self-employed ranchers, income exclusion affects federal tax, state tax, and self-employment tax (approximately 15.3%). If you are a self-employed Montana rancher in the 24% Federal income tax bracket and 5.9% state tax bracket, donating that $3,000 calf is worth a savings of 45.2% or $1,356. A charitable deduction, by contrast, only affects income taxes if you itemize and doesn't apply to self-employment taxes.
How commodity gifts work:
For calves, ownership can transfer via bill of sale, deed of gift, or some similar legal instrument before the calf is sold. The order buyer, sale barn, or other purchaser must make a check out to the charity when the calf is sold. Alternatively, some producers use lighter calves that don't get marketed with the main bunch and have the charity direct the sale barn on the day of sale.
For grain, the storage receipt goes in the charity's name with a letter confirming they own the grain and can direct the sale. The elevator doesn't sell until the charity instructs them.
For hay or other commodities, the charity takes ownership before commercial sale or use.
Low Basis Stock Gifts - Available to Those with Appreciated Assets
If you own stock or real estate with significant unrealized gains, gifting the asset itself to a charity is available as an option. For example, if you own stock or real estate worth $100,000 with a cost basis of $25,000, you’d owe capital gains taxes if you sold it, which are approximately 15% federal plus 4.1% Montana—roughly $14,325 in taxes on the $75,000 gain.
If you donated the stock itself to the charity instead, they could sell it. You wouldn't realize capital gains. The charity would receive the full $100,000 value. The capital gains would be excluded from your taxes.
This approach is similar with home-raised cull cows. A cull cow typically has a basis near zero because you've deducted all raising costs. When you sell it for $2,000, the entire amount is a capital gain. Gifting it to a charity before sale excludes that entire gain from your taxes.
Cash Donations - Available to Everyone
Cash donations are deductible only if you itemize deductions on your tax return. Many people take the standard deduction, which means cash donations may provide no tax benefit. Starting in 2026, there's an additional consideration: even if you itemize, you can only deduct cash donations above 0.5% of your income. For a family earning $300,000, the first $1,500 of cash donations wouldn't count toward a deduction.
If you give $5,000 in cash and don't itemize, there may be no tax planning benefit on your return. You were generous, which has value, but from a tax perspective, the donation might not affect your taxable income.
Understanding the Differences
The key difference between these strategies is how they're treated on your tax return:
Income Exclusion: The income never appears on your tax return. With QCDs and commodity gifts, the income is simply excluded. This affects federal income tax, state income tax, and (for commodity gifts) self-employment taxes.
Capital Gains Exclusion: With low-basis stock gifts, the unrealized gains are excluded from taxation.
Deduction: With cash donations, if you itemize, you deduct the amount from your taxable income. This only reduces your tax if you itemize and the amount exceeds the 0.5% floor.
Documentation
Regardless of the approach used, documentation is important. For commodity gifts, you'd want fair market value on the transfer date, proof that the charity took ownership, and records of what was given and when. For QCDs, your IRA custodian handles documentation. For stock gifts, work with your broker and the charity. For real estate, work with the charity and the real estate agent.
Talk to your CPA and financial advisor about your individual situation. They can help you understand which of these strategies might be relevant based on your specific circumstances, age, assets, and giving goals.
If you have questions about how these strategies work, give us a call: (406) 625-3368
Frequently Asked Questions About Charitable Giving Strategies
What's a QCD and how does it work?
A QCD (Qualified Charitable Distribution) is available to those aged 70 1/2 or older with a traditional IRA. With a QCD, money goes directly from your IRA to a qualified charity and doesn't appear as your income. It's excluded from federal and state taxes. No itemizing is required, and no deduction is claimed. The distribution is simply excluded from your tax return. Eligibility and specific rules vary, so it's worth discussing with your IRA custodian and CPA.
How is a commodity gift treated for tax purposes?
When you donate a commodity you've produced, that commodity doesn't become part of your realized income. It's excluded from your federal income tax, state income tax, and self-employment taxes. This is different from selling a commodity and donating the proceeds, which would result in taxable income that might be deductible if you itemize.
What are the different ways to transfer ownership of a calf to a charity?
There are several approaches. One is a bill of sale or deed of gift that transfers ownership to the charity before the calf is sold. However you decide to market the calves, it’s important to visit with the buyer or sale barn to ensure you are positioning them to ultimately make a check out to the charity directly when the calf is sold. Different approaches work better in different situations.
Can commodity gifts work for grain stored at a commercial elevator?
Yes. The storage receipt can go in the charity's name with a letter confirming they own the grain and can direct the sale. The elevator would hold the grain until the charity instructs them to sell.
What commodities can be donated using this approach?
Any commodity you produce can potentially work this way: grain, hay, calves, feed, produce, or other agricultural products. The commodity would be donated at its fair market value on the date of the gift, and the charity would take ownership.
Can commodity donations be made every year?
Yes, commodity donations can be made annually if desired. Each gift would be documented separately with the fair market value on the date of each transfer.
Ty McDonald is a financial advisor at Down Home Financial, specializing in working with agricultural families and business owners. To discuss how different giving strategies might fit your situation, reach out at (406) 625-3368.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.