Medows CPA, PLLC, a NYC tax and accounting firm provides the following information regarding how The Protecting Americans from Tax Hikes (PATH) Act of 2015 has made permanent the enhanced deduction for charitable contributions of food inventory from any trade or business of a corporate or noncorporate taxpayer. In addition, the PATH Act modifies the enhanced deduction for food inventory for tax years after December 31, 2015. If you have questions about these new tax regulations, please contact our NYC tax and accounting office.
In general, according to our NYC CPAs and tax experts, the enhanced deduction for inventory is equal to the lesser of: the cost of producing the item (or basis) plus one-half of the item’s appreciated value, or twice the basis. Donated food inventories must consist of “apparently wholesome food,” which is defined as food intended for human consumption that meets all quality and labeling standards imposed by federal, state, and local laws and regulations even though the food may not be readily marketable due to appearance, age, freshness, grade, size, surplus, or other conditions.
For tax years after December 31, 2015, the PATH Act modifies the enhanced deduction by:
- increasing the charitable percentage limitation for food inventory contributions and clarifying the carryover and coordination rules for these contributions;
- including a presumption concerning the tax basis of food inventory donated by certain businesses; and
- including presumptions that may be used when valuing donated food inventory.
Percentage limitations. In the case of a taxpayer other than a C corporation, the aggregate amount of applicable contributions for any tax year is increased to 15 percent (from 10 percent) of the taxpayer’s aggregate net income for the tax year from all trades or businesses from which such contributions were made for the year. For a C corporation, the contributions are limited to 15 percent of the corporation’s taxable income.
Qualifying food inventory contributions in excess of the above limitation may be carried forward and treated as qualifying food inventory contributions in each of the five succeeding tax years. In addition, the general 10-percent limitation for a C corporation does not apply to the qualified contributions, but the 10-percent limit applicable to other contributions is reduced by the amount of the applicable food inventory contributions.
Determination of basis. If a taxpayer does not account for inventory under Code Sec. 471 and is not required to capitalize indirect costs under Code Sec. 263A, the taxpayer may elect to treat the basis of any apparently wholesome food as being equal to 25 percent of the fair market value of such food. The election applies only for purposes of computing the enhanced deduction for food inventory.
Determination of fair market value. Special rules apply in determining the fair market value of any contributions of apparently wholesome food inventory which cannot or will not be sold solely
- by reason of internal standards of the taxpayer, lack of market, or similar circumstances, or
- by reason of being produced by the taxpayer exclusively for the purposes of transferring the food to an a Code Sec. 501(c)(3) organization.
The fair market value of such contribution is determined:
- without regard to the taxpayer’s internal standards, the lack of market, or similar circumstances, or by reason of being produced by the taxpayer exclusively for the purposes of transferring the food to an a Code Sec. 501(c)(3) organization
- by taking into account the price at which the same or substantially the same food items (as to both type and quality) are sold by the taxpayer at the time of the contributions (or, if not so sold at such time, in the recent past).
If you would like more information regarding this charitable contribution deduction, or you have other tax questions, including those related to New York State and New York City taxes, please contact our NYC CPA firm at your earliest convenience.