Guidelines for Taxes on Food Donations
A guide to potential savings through tax deductions and waste management
When companies choose to donate surplus food, they are directly supporting people in the community and indirectly helping the environment by diverting edible food from landfills. Every company has a unique situation when it comes to savings and it could come in the form of tax deductions or in deferred waste management costs.
We know taxes can be a headache. We aren’t tax professionals or legal advisors but we can help you learn more about the possible ways your company can save money by choosing to donate food rather than toss it.
Tax deductions at Replate
For offices and businesses that feed their employees
When donors sign up for one of Replate’s Prepaid Subscription Memberships, any pickups unredeemed at the end of the month become tax deductible donations to the 501(c)-3 nonprofit organization. Since the unused pickups did not pay for a service provided, they become considered tax-deductible monetary donations. Only the unused pickups can be written off (not the cost of Replate’s service) because the fees are for a service provided, the IRS doesn’t permit writing the actual pickups off as tax deductions.
If your company provides meals for its employees and then deducts the cost of the food as an employee expense under IRC 162, then you cannot “double dip” and deduct it again as a charitable donation.*
*Exception: If you are signed up for one of our subscription plans and you have unused pickups at the end of each month, the cost per pickup can be written off as a charitable donation.
If you have questions about your specific situation, contact your tax advisors for support.
Other Tax Incentives
For caterers, restaurants, food suppliers and retailers
Food distribution, caterers, and retail businesses can be eligible to receive an enhanced tax deduction for food donation if they meet the requirements. These businesses include C-corporations, S-corporations, limited liability corporations (LLCs), partnerships, and sole proprietorships. When the donated food doesn’t meet the requirements, a business can be eligible to claim a general tax deduction in the amount of the property’s basis.
General tax deduction is used for donations made for charitable purposes as defined under the Internal Revenue Code (IRC), Section 170. ReFED states that “businesses that donate inventory may claim a tax deduction in the amount of the property’s basis, which is usually its cost to the business and is often lower than the fair market value, which is the value at which goods can be sold. Businesses other than C-corporations — including S-corporations, sole proprietorships, and some LLCs — cannot deduct more than 30% of the business’ total taxable income each year. C-corporations generally cannot deduct more than 10% of their taxable income for the year.”
Enhanced tax deduction has specific requirements that the business must meet in order to qualify. The Harvard Food Law and Policy Clinic (FLPC) put out the “Federal Enhanced Tax Deduction for Food Donation: A Legal Guide”with extensive information and details about donating food. In the guide, it states that businesses must meet three main requirements:
The food donation has to go to qualified 501(c)(3) nonprofit organization. The food can only be be used to care for the ill, needy, or infants.
The nonprofit organization receiving the donation may only use the food to care for the ill, needy, or infants.
The nonprofit organization receiving the food cannot use or transfer the food “in exchange for money, other property, or services. The only exception is the nonprofit recipient organization may charge a another organization if it is a “small or nominal in relation to the value of the transferred property and is not determined by this value. And “designed to reimburse the organization for it’s administrative, warehousing, or other similar costs.”
After meeting the food quality requirements and receiving a written statement from the recipient organization who received the food donation, the enhanced tax deduction can be calculated. According to ReFED, “the donating business to deduct the lesser of (a) twice the basis value of the donated food or (b) the basis value of the donated food plus one-half of the food’s expected profit margin (if the food were sold at its fair market value). Under the enhanced deduction, all businesses may deduct up to 15% of their taxable income for food donations.”
Tax specifics vary across the United States, so be sure to investigate further about what applies in your state.
Waste Management Savings
For venues and caterers
The food leftover from events and business catering can be donated instead of put into the dumpster or compost. While more cities are implementing industrial composting facilities, it can be more cost-effective over time to donate rather than sending pounds of yummy catering into the compost
To help uncover potential savings for your business, including food waste diversion savings and tax savings, check out Replate’s interactive Savings Estimator. For businesses that have surplus food (like caterers or event venues), the Savings Estimator can show the estimated savings of donating the food rather than having a local waste management service pick it up.
For businesses eligible for tax deductions, the Savings Estimator uses the above calculations to help show businesses the estimated amount of savings possible by donating their surplus food. All you need to provide is an estimated cost per pound and how much you sell the food at market value per pound. This can help your tax professional estimate your savings.
Bottom line: Regardless of if your company claims the tax incentive or not, the important takeaway here is to always donate surplus food when possible. It helps the people in your local community and it helps reduce the harmful effects of food going to landfills. Composting food is great, but feeding people is even better!
Disclaimer: We are not tax professionals and Replate does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own advisors before engaging in any transaction.