How EDDF Can Make Charitable Food Contributions Better for Everyone – Including Your Business
Most of us know that qualified charitable contributions can be a deduction on your income tax return. However, if your business contributes food inventory for charitable purposes, you may be eligible for a larger deduction than you realized.
Typically, when donating any inventory, the deduction is based on the lesser of the Fair Market Value (FMV) on the contribution date or the original cost basis. However, with EDDF, businesses can secure a deduction above basis under certain conditions. To qualify for this enhanced deduction, the donated food must be "apparently wholesome," intended for human consumption, and meet quality and labeling standards required by federal, state, and local laws. It should exclusively benefit the needy, the ill, or infants and must align with the organization's exempt purpose. Moreover, the food should not be exchanged for money or any other consideration, and the organization must provide a statement confirming compliance with these conditions. Additionally, the donated food must adhere to the Federal Food, Drug, and Cosmetic Act, and the organization must not be a private nonoperating foundation. Rather than deducting just the basis, businesses meeting these criteria can claim a deduction equal to the lower of the basis plus half of the ordinary income that would have been recognized if the property were sold at fair market value, or twice the basis of the property. This means that if a business donates qualifying food inventory with a basis of $10,000 and its fair market value would be $15,000 if sold, the charitable deduction would be the lower of $12,500 or $20,000, resulting in a total charitable deduction of $12,500.
THE ENHANCED DEDUCTION FOR DONATED FOODS The Enhanced Deduction for Donated Foods (EDDF) provides businesses with a unique opportunity to enhance their tax savings when donating food inventory for charitable purposes.
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