@Looney1966 wrote:
Do these deductions get deducted from my Sch F or as an itemized deductions on Sch A. I believe we could use the FMV of the hay.
In most cases, you can't take a deduction. Review IRS publication 526, especially the section on ordinary income property.
Essentially, if you have property that could have been sold for a profit, the value of the donation is not the FMV, but your cost basis. For example, suppose you are a painter, and you buy a $10 canvas and $10 of paint, but you could sell the finished painting for $500. If you donate the painting, your deduction value is limited to your cost basis, or $20. You can never take a deduction for the value of your personal time and effort. Another way to explain it is that you can't take a deduction from your income for something that was never included in your income in the first place. (As an alternative, you could report the "sale" of the painting as business revenue, and then deduct the FMV, but the net result is the same. You have $500 of revenue and $520 of expenses, or you have zero revenue and $20 of expenses.)
I don't think the farm calculation will be much different. If you grow hay for sale, you are already deducting the cost of equipment, fuel, storage, etc. as a farm expense, so the cost basis of the hay is zero. If you give some of it away, even to a qualified charity, you can't deduct the FMV because the FMV was never included in your taxable income in the first place. Your "tax deduction" is the fact that you sell less hay, so you report less income, so you pay less tax. You can't take a separate deduction on top of already paying less tax, because you can't deduct money from your income if it was never included in your income to begin with.
If your only farming activity is producing hay for donation, and you don't file a schedule F, and you don't deduct your expenses in producing the hay by some other method, then you could deduct your expenses as an expense to provide service to a charity, but still not the full FMV.
