Have you ever wondered how much wholesome, prepared food goes to waste at your restaurant each day? The answer probably is a lot more than you think.
However, donating food to those in need could earn you an enhanced tax deduction. Certain larger companies have been able to do that for several years, and the deduction is now available for smaller businesses, thanks to the PATH Act enacted last December.
Here’s are answers to common questions about how it works:
You’ve got wholesome food that hasn’t sold. What should you do with it?
You can either dispose of it or donate it. If you throw it away, you could incur hefty hauling and disposal costs and increase the amount of food waste sent to landfills. Consequently, disposal probably isn’t the most socially responsible solution. But with the new changes to the U.S. tax code, the government is encouraging you to donate rather than dispose of your surplus food.
You must follow one rule: You must be safely donate the food to a qualified 501 (c)(3) non-profit organization to take the enhanced deduction.
How does it work?
Naturally, there are costs associated with food preparation whether you sell the final product or not. Those costs always are deductible on your taxes, even if you end up throwing the food away. However, if you donate the food, you can also deduct the lesser of
(a) The food cost (deducting it a second time)
(b) Half of the profit you would have made had you sold the final food product
Here’s an example: If you had a $10 pizza that cost $3 to make, your profit would be $7 if you sold it. But if you ended up donating it, you could deduct the $3 cost along with the lesser of the $3 cost or half the profit
you would have made on its sale, which is $3.50. The lesser amount, of course, would be the $3 cost. That would end up being your enhanced deduction for donating the item.
How much do I save by donating surplus food?
Your tax savings from donating equals your marginal tax rate x your enhanced deduction.
Now that you know how much you can deduct, there still are a couple of important points to remember:
It’s a tax deduction, not a tax credit. You have to be profitable and pay taxes to take a deduction.
No one is giving you cash; you’re saving money. You’re writing a smaller check to the government, so you’ll have more money to do with as you please.
Best of all, you’ll be doing something good for others and for the environment. It’s a win all the way around.
Jim Larson is director of the Food Donation Connection, a Knoxville, Tenn.-based organization that assists foodservice businesses with food donation programs. The FDC and the National Restaurant Association are partners in the fight against hunger.