The government has encouraged philanthropy since the birth of the charitable deduction under the War Revenue Act of 1917. The cash donation deduction has always been pretty straightforward, but what happens when you donate other things, like your time or food?
Unfortunately there is no charitable deduction allowed for the contribution of services. Only out-of-pocket expenses in the course of performing services for a charitable organization can be deductible. If your hospitality business provides a server for a charitable event, then you are already deducting that server’s wages. There is no further deduction on top of that, even with the charitable purpose.
The rules regarding charitable donations of inventory, specifically food inventory, have fluctuated over the years. Recently a tax law was enacted that made the deduction for food inventory permanent and enhanced it. Previously non-C Corporations and taxpayers that were not required to track inventory did not receive an enhanced deduction. Now, all types of taxpayers can get a deduction of an amount somewhere between their cost basis and the fair market value of the food. This is great for taxpayers because you can get a deduction for more than your cost, and that is almost free money.
The donated food must be “apparently wholesome.” What does “apparently wholesome food” mean according to the IRS? The food must meet all quality and labeling standards imposed by federal, state and local laws and regulations, even if it is not readily marketable due to appearance, age, freshness, grade, size, surplus or other conditions. Because of this definition, the deduction is sometimes referred to as the “stale potato chips deduction.”
The charity must use the donated food inventory in furtherance of its charitable purpose. The food inventory must be used by the organization solely for the care of the ill, needy or infants. No goods or services may be received in exchange for the donation and you must receive a written acknowledgement from the recipient of the gift.
The charitable deduction is subject to some limitations, so you will want to keep track of your cost, if any, and the retail value of the food inventory donations. All types of food industry businesses can benefit from this provision, from farmers and grocery stores to restaurants.
For more information, contact Rob Swenson at [email protected], or call him at 312.670.7444. Visit ORBA.com to learn more about our Restaurant Group.