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However, it's important to note that this deduction is now limited to 15% of net income as of 2022, down from 25% in 2021. The impact of EDDF on the Cost of Goods Sold (COGS) category can be significant. For partnerships, EDDF is separately stated as a charitable deduction on the partner's income tax return, which can increase self-employment earnings. For S Corporations, the reduction in COGS does not affect net income. Unused EDDF can be carried forward for up to five years, but if a company consistently donates more than allowed (15% of net income), these carryforwards may never get used. C Corporations have more flexibility with EDDF, as the general 10% of taxable income limitation on contributions does not apply, but the 10% limit on other contributions is reduced by the amount of applicable food inventory contributions.
A cost-benefit analysis should be performed to determine if the EDDF is beneficial for your business, considering factors such as the cost of inventory and any increase in self-employment income. Finally, keep in mind that some states like California and New York require food surpluses to be donated, making cost-benefit analyses less relevant. In conclusion, the Enhanced Deduction for Donated Foods is a valuable opportunity for businesses to optimize their tax savings. However, it's essential to carefully consider its potential impacts and ensure it aligns with your specific business needs and goals.
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