Tax deductions for food donations?
January 27, 2009 3:34 PM Subscribe
Can grocery retailers claim a tax deduction for the market value of donated food, or just the cost of that food? I've been given both answers - but only one can be right, right?
Here's the background question-prompting situation to this question: I'm trying to figure out the tax incentives for farms to donate their surplus goods to food-distributing charities. Apparently farms can write off the cost of producing the food that they donate, which essentially amounts to the labor, seed, and fertilizer. This doesn't add up to much, so with little tax incentive the farmers let a lot of surplus food go to waste. (If they could write off the market value of their food, however, many say they would be eager to donate the surplus.)
This would seem like less-than-optimal tax policy, especially if in fact retailers do get to write off the market value of the food they donate. Although, if retailers only get to write off the price they paid to purchase the food they ultimately donated, then it seems like there's less of a complaint on the farmer's behalf here.
If anyone can provide clarity on the matters of both retailers *and* farms, well, that would be great.
Here's the background question-prompting situation to this question: I'm trying to figure out the tax incentives for farms to donate their surplus goods to food-distributing charities. Apparently farms can write off the cost of producing the food that they donate, which essentially amounts to the labor, seed, and fertilizer. This doesn't add up to much, so with little tax incentive the farmers let a lot of surplus food go to waste. (If they could write off the market value of their food, however, many say they would be eager to donate the surplus.)
This would seem like less-than-optimal tax policy, especially if in fact retailers do get to write off the market value of the food they donate. Although, if retailers only get to write off the price they paid to purchase the food they ultimately donated, then it seems like there's less of a complaint on the farmer's behalf here.
If anyone can provide clarity on the matters of both retailers *and* farms, well, that would be great.
It's not a direct answer to your question, but they can both be right.
The grocery stores bought the food on the wholesale market. So a deduction for the wholesale cost of the food would be a deduction for the market value.
posted by Jahaza at 4:06 PM on January 27, 2009
The grocery stores bought the food on the wholesale market. So a deduction for the wholesale cost of the food would be a deduction for the market value.
posted by Jahaza at 4:06 PM on January 27, 2009
Your Director wasn't shady at all, hal_c_on. The loss to the donor is the sale price, not the stocking fee. Retailers don't keep goods on their shelves for free; there's rental, wages to the stocking clerks, insurance - in short, overhead.
You deduct the effective value of the donation.
Another example: I once donated wild-gathered mushrooms to a fundraiser. My cost: $0, plus hours of tramping through the woods. Effective value: $45/pound. Under your theory, my donation was effectively worthless.
posted by IAmBroom at 5:52 PM on January 27, 2009
You deduct the effective value of the donation.
Another example: I once donated wild-gathered mushrooms to a fundraiser. My cost: $0, plus hours of tramping through the woods. Effective value: $45/pound. Under your theory, my donation was effectively worthless.
posted by IAmBroom at 5:52 PM on January 27, 2009
Just to throw in another completely unrelated data point, I work at a software company. I can buy software from the company store (employees only) for $100 that retails for $800. Donating this to a charity is worth a $100 deduction, not an $800 deduction.
posted by 0xFCAF at 5:56 PM on January 27, 2009
posted by 0xFCAF at 5:56 PM on January 27, 2009
One (the only?) nice thing about the IRS is that its website is pretty comprehensive. Here's Publication 526 (2007) and the relevant part concerning donations of "food inventory:"
Food Inventory
Special rules apply to certain donations of food inventory to a qualified organization. These rules apply if all the following conditions are met.
You made a contribution of apparently wholesome food from your trade or business. Apparently wholesome food is food intended for human consumption that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions.
The food is to be used only for the care of the ill, the needy, or infants.
The use of the food is related to the organization's exempt purpose or function.
The organization does not transfer the food for money, other property, or services.
You receive a written statement from the organization stating it will comply with requirements (2), (3), and (4).
The organization is not a private nonoperating foundation.
The food satisfies any applicable requirements of the Federal Food, Drug, and Cosmetic Act and regulations on the date of transfer and for the previous 180 days.
If all the conditions above are met, use the following worksheet to figure your deduction.
Worksheet 1.
Donations of Food Inventory
(See separate worksheet instructions)
(Keep for your records)
1. Enter fair market value of the
donated food
2. Enter basis of the donated
food
3. Subtract line 2 from line 1.
If the result is less than zero,
skip lines 4 through 6 and
enter the amount from line 1
on line 7
4. Enter one-half of line 3
5. Subtract line 4 from line 1
6. Multiply line 2 by 2.0
7. Compare line 5 and line 6.
Enter the smaller amount
8. Enter 10% of your total net
income for the year from
all trades or businesses
from which food
inventory was donated
9. Compare line 7 and line 8.
Enter the smaller amount.
This is your charitable
contribution deduction
for the food
Worksheet instructions. Enter on line 8 of the worksheet 10% of your net income for the year from all sole proprietorships, S corporations, or partnerships (or other entity that is not a C corporation) from which contributions of food inventory were made. Figure net income before any deduction for a charitable contribution of food inventory.
If you made more than one contribution of food inventory, complete a separate worksheet for each contribution. Complete lines 8 and 9 on only one worksheet. On that worksheet, complete line 8. Then compare line 8 and the total of the line 7 amounts on all worksheets and enter the smaller of those amounts on line 9.
More information. See Inventory, earlier, for information about determining the basis of donated inventory and the effect on cost of goods sold. For additional details, see section 170(e)(3) of the Internal Revenue Code.
P.S. IAAL; BIANYL
posted by webhund at 6:14 PM on January 27, 2009
Food Inventory
Special rules apply to certain donations of food inventory to a qualified organization. These rules apply if all the following conditions are met.
You made a contribution of apparently wholesome food from your trade or business. Apparently wholesome food is food intended for human consumption that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions.
The food is to be used only for the care of the ill, the needy, or infants.
The use of the food is related to the organization's exempt purpose or function.
The organization does not transfer the food for money, other property, or services.
You receive a written statement from the organization stating it will comply with requirements (2), (3), and (4).
The organization is not a private nonoperating foundation.
The food satisfies any applicable requirements of the Federal Food, Drug, and Cosmetic Act and regulations on the date of transfer and for the previous 180 days.
If all the conditions above are met, use the following worksheet to figure your deduction.
Worksheet 1.
Donations of Food Inventory
(See separate worksheet instructions)
(Keep for your records)
1. Enter fair market value of the
donated food
2. Enter basis of the donated
food
3. Subtract line 2 from line 1.
If the result is less than zero,
skip lines 4 through 6 and
enter the amount from line 1
on line 7
4. Enter one-half of line 3
5. Subtract line 4 from line 1
6. Multiply line 2 by 2.0
7. Compare line 5 and line 6.
Enter the smaller amount
8. Enter 10% of your total net
income for the year from
all trades or businesses
from which food
inventory was donated
9. Compare line 7 and line 8.
Enter the smaller amount.
This is your charitable
contribution deduction
for the food
Worksheet instructions. Enter on line 8 of the worksheet 10% of your net income for the year from all sole proprietorships, S corporations, or partnerships (or other entity that is not a C corporation) from which contributions of food inventory were made. Figure net income before any deduction for a charitable contribution of food inventory.
If you made more than one contribution of food inventory, complete a separate worksheet for each contribution. Complete lines 8 and 9 on only one worksheet. On that worksheet, complete line 8. Then compare line 8 and the total of the line 7 amounts on all worksheets and enter the smaller of those amounts on line 9.
More information. See Inventory, earlier, for information about determining the basis of donated inventory and the effect on cost of goods sold. For additional details, see section 170(e)(3) of the Internal Revenue Code.
P.S. IAAL; BIANYL
posted by webhund at 6:14 PM on January 27, 2009
In English:
If you paid more for the food than its market worth, you can deduct what you paid.
Otherwise you can deduct the smallest one of:
- 10% of the income from your businesses that donated food
- Double what you paid for it
- Market value/2 + Cost/2
posted by Diz at 8:38 PM on January 27, 2009
If you paid more for the food than its market worth, you can deduct what you paid.
Otherwise you can deduct the smallest one of:
- 10% of the income from your businesses that donated food
- Double what you paid for it
- Market value/2 + Cost/2
posted by Diz at 8:38 PM on January 27, 2009
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Of course, US tax law is mind-bendingly complex so food might be a special case. Did you know there's a special case for expenses paid by certain whaling captains in support of Native Alaskan subsistence whaling?
posted by Mike1024 at 4:03 PM on January 27, 2009