July 2017 economic and policy update

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& Policy Update Graphic owner: UKZN SAEES: school website

July 26, 2017 Volume 17, Issue 7

ENHANCED TAX CREDIT AVAILABLE FOR CHARITABLE FOOD DONATION

Edited by Will Snell & Phyllis Mattox

In talking with several vegetable and fruit producers this summer, one commonality is the decrease in customers and sales this growing season. This is resulting in more surplus produce for the producers. Many will donate their surplus products to food pantries or homeless shelters. In addition to the good deed, producers should also realize it is possible for them to get credit for their donations in the form of a tax credit.

FEATURED ARTICLES

Congress passed legislation for an enhanced deduction for tax-paying businesses that donate food to a food bank or other charitable organization. Sole proprietors, partnerships, corporations, and limited liability companies can all benefit. If your farm donates food to a charitable organization and expects to owe taxes in the next five years, you can potentially claim a deduction.

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A tax credit is a direct reduction in the amount of taxes owed while a tax deduction is a reduction of the taxpayer’s taxable income. Taxpayers have always been able to file for a tax deduction for ordinary income property (property that could have provided additional income to the donor, such as food products) that was donated. However, the tax deduction was limited to the property’s basis or the amount the business paid for the product or the cost of producing it. Normally the basis is lower than what the producer could have received for the product if sold on the market. The charitable contributions are capped at different rates depending on what type of business made the donation. The recently passed enhanced deduction allows a donor to value the donation at the lesser of your tax basis of the donated food plus one-half of the appreciation or twice your tax basis. The appreciation is equal to the fair market value minus the tax basis. As long as the food is “apparently wholesome”, you do not have to factor in whether you had a buyer, or whether the food meets normal standards for size, shape, etc. Fruits, vegetables, and meat products are qualified donations. If a producer grew peaches at a cost of $200 and donated the peaches at a fair market value of $300 to a food bank, he would have a potential deduction. His deduction would be $200 (basis) plus $50 (one-half of the $100 appreciation) = $250. The “twice basis” limitation does not apply because the $250 is less than twice the basis ($200 x 2=$400). In a year with significant surplus, this deduction could be very beneficial to producers. To receive the tax credit, an eligible business must meet three requirements: 1) The donor must donate food to a qualified 501(c)(3) nonprofit organization that uses the food solely for the care of the ill, needy, or infants. 2) The recipient organization must use the donated food in a manner consistent with the purpose constituting that organization’s exempt 501(c)(3) status. 3) The recipient organization may not use or transfer the food in exchange for money, property, or other services. Businesses claiming the enhanced tax deduction for donating food must receive a written statement from the recipient organization including a description of the contributed property and the date of its receipt. In addition, a statement that the recipient is recognized as a 501(c)(3) organization and that the property will be used in compliance and that adequate records will be made and available to the Internal Revenue Service upon request. The deduction is limited to 15 percent of your farm’s net income. Your charitable contributions cannot offset more than 50 PAGE percent2of your adjusted gross income. If you do not owe taxes in the current year, the deduction can be claimed within five years of your donation. You can carry the deduction and any excess donations over the 15 percent or 50 percent limits, over each of the five years.


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July 2017 economic and policy update by Kentucky Ag Programs - Issuu