How EDDF Can Make Charitable Food Contributions Better for Everyone – Including Your Business
By Emily Chamberlain, Senior, Tax & Business Services & Ken Levinson, Director, Tax & Business Services
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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. THE ENHANCED DEDUCTION FOR DONATED FOODS (EDDF) Typically, when any inventory is donated, you can deduct the lesser of its Fair Market Value on the date of contribution, or its original cost basis. To illustrate, assume a business purchases inventory for $1,000 that would ordinarily be sold for is $1,400. The deductible amount would be $1,000 because it is the lesser of FMV and basis. The concept is simple enough – donating inventory effectively removes the amount donated from your Cost of Goods Sold (COGS) and deducts it as a charitable contribution instead.
If, however, your business donates food inventory, there is the possibility of a deduction above basis1. For the sake of this discussion, we will refer to this additional deduction as the Enhanced Deduction for Donated Foods (EDDF). To get this EDDF, the following conditions must be met: 1. The food contributed must be “apparently wholesome” food. This means that the food must be “intended for human consumption [and] meet all quality and labeling standards imposed by federal, state, and local laws and regulations…”2 2. The food must only be used for the needy, the ill, or infants. 3. It must be related to the organization’s exempt purpose. 4. The food must not be exchanged for money or any other consideration.
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