13 Apr Can I deduct expenses for growing food that I donate?

Q. I am an avid gardener and have been a part-time tree and shrub grower. I retired from my traditional job but I would like to grow food for food banks and people in need. Can we deduct any costs, like seeds, fuel and mileage, on our tax return?
— Grower

A. There are several options here.

Let’s start by addressing the possibility of running your business as a non-profit organization.

There are many requirements to get a non-profit up and running, said Cynthia Fusillo, a certified public accountant with Peapack Private Wealth Management in New Providence.

First, she said, you would have to register with the State of New Jersey and incorporate.

“As a corporation you’d most likely need to establish bylaws, an internal document that you’d abide by,” she said. “You would then apply for an EIN — employer identification number — with the IRS. This would be required even if you didn’t have employees.”

You would then file for tax-exempt status with the IRS and once approved, you’d be required to stay in compliance or risk losing tax exempt status, Fusillo said.

“Compliance requirements include filing annual tax returns — usually form 990 — paying any required state fees and not retaining any profit, to name a few,” she said. “This can be cumbersome and may be more than you want to tackle and more than what is needed to accomplish your goal.”

As individuals filing a joint return, you may qualify to itemize your deductions, and those deductions can include charitable donations of goods, she said.

Note that New Jersey does not allow for charitable contributions, so any benefit would be at the federal level only, she said.

“Currently, taxpayers will itemize their deductions when their total deductions exceed the amount of the standard deduction,” she said. “For 2021 the standard deduction for a married couple filing jointly is $25,100.”

Assuming you will itemize, then your donated goods would be deducted at their fair market value, she said.

Fusillo said there are many organizations in New Jersey that you could donate fresh produce to, including Ample Harvest and the Community Food Bank of New Jersey.

“These organizations make the distribution of the food easier, meaning they take much of the work off your hands and get the product distributed where it’s needed,” she said. “It would be up to you however to determine the fair market value of what you donate.”

You could also add your charitable mileage to your itemized deductions, she said. The IRS issues a per mile rate for charitable miles driven and currently that rate is 14 cents per mile.

“However, should your total deductions not exceed the level of itemizing — $25,100 — you would lose the deduction for this work,” she said. “Currently there is a provision to allow taxpayers to deduct up to $300 of cash donations, but your fresh produce would not fall into this category.”

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This story was originally published on April 13, 2021.

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