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    Donation Tax Incentives

    Diversion Potential:
    383K Tons

    Economic Value Per Ton:
    $1,230

    GHGs Reduced:
    874K Tons

    Meals Recovered:
    638M Meals

    Definition

    Expanding federal tax benefits for food donations to all businesses and simplifying donation reporting for tax deductions

    Overview

    Tax incentives, whether in the form of credits or deductions, induce farms, retailers, restaurants, and foodservice providers to undertake the behavioral and operational changes needed to donate additional food instead of sending it to disposal. It is expected that the tax benefits will roughly equal the incremental costs of donation, leading to a net breakeven financial impact for businesses.

    In total, up to $750 million of additional annual federal tax deductions should be funded to achieve 380,000 tons of additional donations: $620 million in incentives to farms would yield an additional 525 million donated meals, while $130 million provided to restaurants and retailers would generate 115 million meals annually. There is a lack of data regarding the portion of food donors that receive tax incentives. Anecdotal evidence from ReFED interviews suggests that a large portion of businesses may not go through the effort of claiming small tax benefits after donating, which could significantly reduce the net cost of this solution.

    While enhanced deductions were passed in December 2015 as part of the Protecting Americans from Tax Hikes (PATH) Act, food donation tax incentives will require ongoing support from food recovery organizations, foundations, and businesses to make them a priority in the face of future tax reforms.

    Challenges

    • Successful food donation reform at the federal level requires a clear demonstration of expected societal benefits.
    • Businesses may have practical difficulty claiming the tax benefits. For example, a recently passed food donation state tax credit in California requires an inventory-based method of valuation that is only accessible to large farming operations with well-established record-keeping practices, according to our interview with a food recovery organization.

    Stakeholder Actions

    • Businesses should actively educate themselves on how their eligibility for tax incentives has changed to spur an increase in food donation efforts.
    • Foundations and nonprofits can identify and promote additional donation policy opportunities — such as state-level tax credit programs — while helping measure the impact and success of existing food donation legislation.
    • Nonprofits can lead efforts to analyze the cost-effectiveness of tax deductions to ensure ongoing and additional funding at the state and federal levels.
    • Various types of food business need to collectively identify deficiencies in existing food donation laws and help draft new legislation that will meet the needs of donor and recipient organizations and fully incentivize businesses to engage in food recovery.

    Examples & Resources

    • In December 2015, Congress signed into law a tax break package with provisions making permanent the charitable giving tax incentives for donating food. Supported by a coalition of nonprofit organizations including Feeding America, the Protecting Americans from Tax Hikes (PATH) Act made various new business entities eligible for food inventory enhanced deductions that had previously only been accessible to large C corporations. Under the previous standard food donation deduction, a business could only claim the cost basis of donated inventory. An enhanced deduction passed in this legislation allows businesses to claim both the cost basis and half of potential profits if the inventory could be sold at fair market value. This new legislation is expected to spur increased donations from farms and smaller retailers and restaurants.


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