Food Donations Qualify For An Enhanced Tax Deduction
Corporations, unfortunately, aren’t inclined to give without incentivization. Even necessities, such as food, are often disposed of rather than donated to nonprofit organizations. In recent years, unfavorable tax legislation has led to a decline in food donations because corporations feared civil and criminal liabilities. New tax laws, however, provide necessary legal shelter and offer generous tax breaks—the floodgates for giving are now open.
The FLPC, an organization responsible for suggesting changes to tax deduction policies for food donors, worked with other major food donors to send Congress a petition for sweeping reform to tax laws, including giving breaks to retailers and manufacturers willing to donate unsold foods. Finally, as of December 2015, the federal government has begun recognizing S corporations, LLCs, sole proprietors, and even individuals who donate unsold untainted food.
An example of the enhanced tax deduction:
“A grocery store donates potatoes with a fair market value of $100. The basis value of these potatoes was $30. The expected profit margin is the fair market value minus the basis value ($100 – $30), which is $70. Under the enhanced deduction, the grocery store is eligible to deduct the smaller of:
1. Basis Value x 2 = $30 x 2 = $60
2. Basis Value + (expected profit margin/2) = $30 + ($70/2) = $65
Benefits of the Enhanced Tax Credit
These enhanced donation tax credits allow food wholesalers and manufacturers to deduct up to 15 percent of their gross annual income just for donating unused food. Calculators can help determine the fair market value of donated products so the correct amount can be deducted. This incentive, coupled with legislation that prevents lawsuits from being filed should donate food be unknowingly tainted, increases the frequency in which businesses can donate food.
Because transportation costs are already a business tax deduction, any and all fuel, and mileage necessary to safely donate food is also deductible. The labor necessary to pack and unload the food donations is also deductible. With so many deductions available, the 30 percent of food wasted annually across the globe should begin tailing off as more people begin to accept the enhanced tax deductions, which, thanks to the PATH Act, are permanent fixtures in tax legislation.
American food banks such as those provided by Gleaners and the Salvation Army are experiencing shortages, especially in states that have experienced bad weather earlier than usual this year. Restaurants and local businesses are stepping up, but many major food retailers are lagging or are simply unaware of the tax benefits and have yet to contribute. Food America is one organization that consistently fosters the donation of unsold food items to local food banks; however, it will take more effort from similar nonprofits to increase awareness of tax benefits.
At the end of most tax seasons, corporations rush to shed stagnant inventory from their books. Instead of dumping slightly outdated but perfectly edible unused food, why not donate it? The tax benefits for donating food are tremendous and work in syncopation with the many tax benefits already given to businesses. As previously mentioned, legislation signed by former President Clinton safeguards food donations made by businesses from civil or criminal litigation provided there’s no suspected case of gross negligence.
Farmers, who donate food freely in their communities regardless of tax law, do not qualify for tax deductions if they are sole proprietors; this is primarily because they use a cash balance method of accounting and thus cannot account for the base value of the foods donated. Those who are unsure whether their business model allows for this type of tax deduction are encouraged to consult with their accountants.
With effort, we can all convert our wasted food into a win-win for everyone. Ready to help us Stop Waste Together?