Following is some information on tax benefits of donating food. It is important to note that we are in the business of warehousing and distributing food to hunger relief agencies, and as such, this should not be construed as tax advice and legal advice. We strongly encourage you to contact your tax or legal professional regarding the new benefits of donating food for hunger relief.
Allowable Deductions for Charitable Donations of Ordinary Income Property: The general rule since 1969 states that a taxpayer who contributes appreciated inventory or certain other ordinary income property is permitted a charitable deduction only for an amount equal to the taxpayer’s basis in the contributed property, generally limited to the adjusted basis of the property, not its fair market value.
Congress, in the 1976 Tax Reform Act, further refined the statute to allow corporate donors (applicable for C corporations, not S corporations) an increased deduction, under certain circumstances, for contributions or ordinary income property to a public charity or to a private operating foundation.
Under IRC Section 170 (e) (3), a corporation is entitled to a deduction with respect to a contribution to a public charity or to a private operating foundation of appreciated property described in IRC Section 1221 (1) and (2). That is, certain types of ordinary income property in an amount equal to:
A. The sum of one-half of the unrealized appreciation (market value minus cost equals appreciation) plus the taxpayer’s cost, but
B. Not in excess of twice the cost of the contributed property as described in IRC Section 170 (e) (B).
Example: Selling Price $4.00 Cost $1.00 Gross Profit $3.00 One-half of $3.00 equals $1.50. The maximum deduction can never exceed two times cost ($2.00). Therefore, gross profit is limited to $1.00. Total charitable deduction: $2.00
* A common example of ordinary income property is property held primarily by the donor for sale to customers in the ordinary course of business.
On October 1, 1996, President Clinton signed the Bill Emerson Good Samaritan Food Donation Act to encourage the donation of food and grocery products to non-profit organizations for distribution to needy individuals. This new law makes it easier to donate.
It protects donors from liability when donating to a non-profit organization.
It protects donors from civil and criminal liability should the product donated in good faith later cause harm to the needy recipient. It standardizes donor liability exposure.
Donors and their legal counsel no longer have to investigate liability laws in 50 states.
It sets a liability floor of “gross negligence” or intentional misconduct for persons who donate grocery products. (See Act text for further definitions.)
Congress recognized that the provision of food close to recommended date of sale is, in and of itself, not grounds for finding gross negligence. For example, cereal can be donated if it is marked close to code date for retail sale.
Bill Emerson Food Donation Act
Learn more about the Bill Emerson Good Samaritan Food Donation Act.