Basics of Food Donations and Bartering as a Farm

For-profit farms often donate produce, meat, and other farm products to community members and organizations. These efforts may be infrequent or a part of regular business operations. Either way, there may be a tax benefit available to for-profit businesses making frequent and/or large donations of food that can help with sustaining both the business and its charitable offerings.

A best practice for farmers is to account for each and every transaction in the business’s books, including non-cash donations such as free produce and meat. Tracking sales and output is important for general business management, but it can have other benefits. Tracking both cash and non-cash transactions helps manage inventory and profits and, if eligible, provides a basis for a tax deduction.

However, donating to an individual is not a tax-deductible donation. In order to get the benefit of a tax deduction, the donation must be to a qualified 501(c)(3) organization. This structure encourages indirect giving rather than person-to-person charity. Farmers who want to donate but also want to take advantage of the tax deduction for the amount they are donating have to donate to tax-exempt organizations and direct any individuals they want to help to those organizations.

For-profit farms wanting to make tax-deductible donations need to be sure to account for the value of produce, meats, herbs, etc. donated to a nonprofit organization, such as a food bank or after-school program. While some farms make planned regular donations, others may donate what is left over from farmers’ market sales. Some farmers’ markets have a booth for a nonprofit food-gleaning organization. After market, these organizations collect left-over produce donations for their food distribution programs and can provide a receipt. If your market has this type of organization and is a 501(c)3 nonprofit, then these donations could provide a benefit back to the farm. If you track the value of the donated produce, you can select that value as a tax-deductible donation.

Important thresholds: If a farmer gives cash or property, like produce, to a charitable organization that exceeds $250 in value, the farmer will need the organization to recognize the gift in writing for tax purposes. A non-cash charitable deduction of $500 or more requires the farmer to complete IRS form 8283. Neither of these is likely to occur on an informal basis at the farmers’ market, but it is important to keep these thresholds in mind for larger donations so you can be sure to extract the tax benefit.

Bartering as a For-Profit Business

Another common practice among farmers and at the end of the farmer’s market is bartering. A livestock farmer may trade a meat share for a veggie share from their neighboring specialty crop grower. Or a baker may trade unsold loaves for some lettuce and kale after a Saturday market. In this way, farmers can trade away excess inventory or provide specialty services and keep their cash for other uses. Are there tax and regulatory rules around this type of behavior?

The short answer is yes! Even though bartering is the oldest form of trade, our modern regulatory system still lays claims to bartering gains. If you exchange services or goods with another business, the transaction results in taxable income for both parties. On the flip side, bartering doesn’t include arrangements on a noncommercial basis, such as a childcare cooperative run by neighborhood parents. But we’re focusing on the exchange of goods and services between commercial businesses, which in the eyes of the IRS is taxable income. Failing to report barter transactions is deemed as tax evasion, the same as it would for regular transactions.

So, how do you know how much taxable income your barter is worth? The goods or services must be assigned a fair market value. This fair market value could be what a farmer would normally charge for the bartered goods or services, or the businesses could agree on a value in advance. Generally, either tactic would provide an acceptable fair market value.

Let’s consider an example:

• Farmer Aliyah helps Farmer Ben build five new no-till 50’ beds on his farm.
• This work is done in exchange for Ben bush-hogging Aliyah’s farm in the off-season.
• Both farmers would be taxed on the fair market value of the services received.

How do you determine the fair market value?

Aliyah could value her services per hour. She wants to be compensated at a higher hourly rate than she can pay herself on her farm because not only are they laboring on Ben’s farm, but Aliyah is demonstrating and teaching Ben about building no-till beds. They use hand tools to build, amend, and finally plant the beds. All in all, the work takes two full days. At $30/hour, Aliyah is owed $480 for the bed building and educational services. Ben normally charges $500 to travel with his tractor and bush hog several acres but gives Aliyah a slight discount so that the exchange is equal. Both agree this is a fair assessment of the services they are trading. In that case, $480 would be the fair market value for their trade.

For individuals that barter, the “income” from these transactions will be reported on Schedule C or F, the Profit or Loss IRS form.

There’s one even more formal way to participate in bartering, and that is through a bartering exchange, sometimes referred to as a bartering club. This is an organization whose members contract with each other (or the barter club itself) to exchange property or services. These could be local or widespread, as the internet has helped to increase the reach of bartering possibilities.

These exchanges often use a system of credits to track the back and forth of traded services or goods. The barter exchange/club manages an internal cashless marketplace, allowing members to exchange credits with one another. Of course, even though this is an alternative marketplace that doesn’t use money, the IRS still regulates this activity. And, since the setup is more complicated than an individual-to-individual exchange, so are the taxes.

Barter clubs issue IRS Form 1099-B, Proceeds from Broker and Barter Exchange Transactions to their members. Here the value of the credits, goods, and services each member held or used during the year will be reflected. Members will then have to report this income on their personal tax returns (or business returns if the business is a part of the exchange). Note that unused credits reported in a year are taxed that year. However, if they are redeemed the following year, the member won’t be taxed again on the value of the services or property for which they redeemed the credits.

Since bartering is equal to cash in terms of tax liability and reporting, there isn’t an obvious tax advantage to be had with bartering. The benefits come from the act of bartering itself—farmers can get things without having to use cash, which can be hard to come by at certain times of the season.

Supporting Your Community as a For-Profit Business

Small, local businesses do a lot to support a community simply by existing. Providing local alternatives to large corporate chains stimulates the local economy, lowers carbon emissions from shipping and travel, and creates jobs for their community members. Small businesses create a culture that can enliven a community and give the area a stronger sense of identity.

Beyond these benefits, some small businesses will continue to give back to their communities in other ways. Some choose to make donations, the tax implications of which are covered above. Others may also be interested in charitable marketing opportunities. This could range from sponsoring a community event to volunteering for a community roadside clean-up.

These sponsorships or volunteer participation contribute to the community but also boost brand awareness and demonstrate the business’s values. Participating in the community builds customer relationships—the most important relationships for a business. If your farm business wants to sponsor an event or charity for marketing and social justice purposes, there will be some related expenses that would be tax deductible. Any marketing expenses—travel, advertising, refreshments, or other supplies—would qualify.

There is a specialized mileage rate for charitable giving. The 2024 IRS standard mileage rate for charitable giving remains at 14 cents, meaning you can deduct 14 cents per mile when you travel to help a charitable organization. That’s not a big deduction, but it can still be worth tracking and deducting. Keep gas receipts and track mileage to better estimate the money you’ve spent traveling for charitable giving.

Checklist of Business Practices: Am I getting all the benefits of giving back?

Use this checklist to see which best practices for donations, bartering, and community engagement are aligned with your business goals:

• Do you track all transactions, even those that don’t involve cash (donation of farm products or barters)?
• Are you thinking about the fair market value of the items you trade or donate? Are you giving yourself enough credit for the valuable items you give away for free?
• Are you donating to individuals? If so, does the value of the one-on-one connection override the potential tax benefits if you were to instead donate to a 501(c)(3) organization?
• If you want to engage in more non-cash transactions, do you want to look for a barter exchange or club in your area? What about starting one with a group of farmers?
  • Are you ready to take on the increased administrative burden of tracking credits and trades? Are you willing to issue the correct tax forms to all members?
  • Are you willing to accept the risk of bartering informally and not tracking the fair market value for tax purposes?
• Does your business volunteer at or sponsor community events?
  • If so, do you track any expenses associated with this participation? Are you using the correct calculation for travel mileage?
  • Are you properly marketing your business at these events so your business can build relationships with your community?