Feeding America partner organizations are eligible for a number of tax benefits. Following is a summary of the effect current tax laws have on the treatment, under the Internal Revenue Code (IRC), of donations of appreciated ordinary income property when contributed by corporations to charitable organizations.
Allowable Deductions for Charitable Donations of Ordinary Income Property:
Current Tax Law
- Enhanced tax deduction available for donations of fit and wholesome food inventory to qualified 501(c)3 nonprofit organizations serving the poor and needy (Internal Revenue Code 170e3).
- Qualified business taxpayers can deduct cost to produce the food and half the difference between the cost and full fair market value of food donated
- Deductions apply to C corporations permanently and non c corporations (like sole proprietors, S corps & LLCs) through the end of 2013.
Your company may take the sum of one-half of the unrealized appreciation (market value minus cost = appreciation) plus the taxpayer’s cost, but not in excess of twice the cost of the contributed property.
Selling Price $4.00
Gross Profit equals $3.00
One-half of $3.00 equals $1.50
The maximum deduction can never exceed
two times the cost ($2.00). Therefore, gross
profit is limited to $1.00
Total charitable deductions: $2.00
Special Consideration for Produce Growers
Farmers that are sole proprietors do not qualify for the deduction because they:
Use the cash balance method of accounting.
Keep track of money in and money out, but not the specific costs of items like fertilizer, seed costs, irrigation costs, etc.
Cannot calculate the cost (or basis) to produce the food, so cannot calculate the enhanced tax deduction
The Bill Emerson Good Samaritan Food Donation Act was created to encourage the donation of food and grocery products to 501(c)3 certified nonprofit organizations. Under this Act, as long as the donor has not acted with negligence or intentional misconduct, the company is not liable for damage incurred as the result of illness.