In order to encourage charitable contributions of food inventory to organizations that feed the needy, Congress passed legislation for an increased tax deduction.
A restaurant may now deduct the cost of the food, plus ½ of the difference between the cost of the food and the amount for which the food would have been sold at menu price.
Assume during the tax year XYZ Café donates food with a cost of $4,000 to a local food bank, and that the food had a fair market value of $10,000. XYZ could deduct a charitable contribution of $7,000, computed as follows:
Menu price of donation $10,000
Less cost of food -4,000
x 50% 3,000
Charitable contribution $ 7,000
In order to qualify for the increased deduction, certain conditions must be met.
- The food must be inventory normally sold to customers in the ordinary course of the restaurant’s trade or business.
- The organization to which the food is donated must be a Section 501(c) (3) public charity exempt from income tax under Section 501(a).
- The organization must use the donated food in connection with the function or purpose for which it has been granted tax-exempt status, and use it solely for the care of the ill, the needy, or infants.
- The organization receiving the donation cannot receive compensation for the transfer or use of the contributed food.
- The restaurant must receive a written statement from the organization stating that the donated food will be used in accordance with items 3& 4.
- The food donated must meet the definition of “apparently wholesome food” as defined in the Good Samaritan Food Donation Act. Suffice it to say, that a donation of salable food from a restaurant’s inventory would meet this definition.
Please note that the increased donation will apply only to restaurants that are C corporations for tax years beginning after December 31, 2009. However, the increased deduction was previously available to restaurants not operating as C corporations. MRA suggests you consult your tax professional regarding the applicability of this information to your restaurant, referring them to Section 170(e) (3) of the Internal Revenue Code.