Can Restaurants Write Off Food Waste for Tax Purposes?

Restaurants inevitably deal with food waste, whether from spoilage, overproduction, or unsold inventory. Managing these losses effectively impacts financial and operational efficiency. A common question restaurant owners have is whether they can claim tax deductions for discarded food.

Tax rules on food waste depend on how the loss occurs and what happens to the unused goods. Understanding these distinctions helps businesses maximize deductions while staying compliant with IRS regulations.

Distinguishing Spoilage from Usable Inventory

Restaurants must differentiate between spoiled food and inventory that remains usable but is no longer needed. This distinction matters because tax treatment varies depending on whether an item is classified as a business expense or a deductible loss.

Spoilage occurs when food deteriorates beyond safe consumption due to expiration, improper storage, or contamination. Perishable items like dairy, seafood, and fresh produce are particularly vulnerable. When these goods become unsellable, their cost is already included in the restaurant’s cost of goods sold (COGS), meaning no additional tax deduction is available.

However, inventory that remains in good condition but is no longer needed—such as surplus ingredients from a discontinued menu item—may be handled differently. If still safe for consumption, these goods can be repurposed, sold at a discount, or donated. The IRS does not classify such items as spoilage, and their tax treatment depends on how they are ultimately used or discarded.

Deducting Disposed Goods

When food inventory can no longer be sold but is not donated, businesses may still account for these losses in their financial records. The IRS allows deductions for certain business expenses, but how disposed goods are treated depends on the reason for removal.

If a restaurant discards food due to over-ordering or poor forecasting, these costs are absorbed into COGS. Since COGS is already deducted from taxable income, there is no additional write-off for discarded items.

However, if food is lost due to external factors such as a refrigeration failure, fire, or pest infestation, the loss may qualify as a casualty loss under IRS guidelines. Casualty losses are deductible if they meet IRS criteria, requiring the loss to be sudden, unexpected, and unrelated to normal business operations. Businesses must first file an insurance claim, and any reimbursement received reduces the deductible amount.

Inventory shrinkage, which includes theft, damage, and unaccounted-for losses, is another consideration. If food is stolen or damaged in transit or during handling, these losses can be recorded as business expenses. Excessive shrinkage may attract IRS scrutiny, so maintaining accurate inventory records is essential.

Charitable Contributions

Donating surplus food can provide a tax benefit, but IRS guidelines must be followed to claim a deduction. The Internal Revenue Code allows businesses to deduct the fair market value of donated goods, with additional incentives for contributions to qualified charitable organizations. The recipient must be a registered 501(c)(3) nonprofit that distributes food to those in need rather than reselling it. Eligible recipients include food banks, shelters, and community kitchens.

The tax deduction is based on either the cost basis of the donated food or its fair market value, whichever is lower. However, an enhanced deduction under the PATH Act allows businesses to deduct up to twice the cost basis if the food meets safety standards and is properly documented. For example, if a restaurant donates fresh produce with a cost basis of $500 and a market value of $1,200, the allowable deduction would be $1,000 (2 × $500), rather than just the original cost.

Proper documentation is required to substantiate the deduction. Restaurants must record the type and quantity of food, its condition at the time of donation, and the date of transfer. A written acknowledgment from the receiving charity is necessary for contributions exceeding $250. If total annual donations surpass $500, Form 8283 must be submitted with the tax return. Inadequate documentation can result in disallowed deductions.

Documenting Waste for Tax Purposes

Accurate record-keeping is necessary for restaurants to properly account for food waste and comply with IRS regulations. Businesses must maintain detailed documentation of inventory adjustments, including waste tracking logs, disposal receipts, and internal reports explaining why goods were removed from stock. Without sufficient records, deductions or expense claims related to inventory losses may be disallowed in an audit.

An inventory management system that tracks purchases, usage, and disposals can help. Many point-of-sale (POS) systems integrate with inventory software to log shrinkage, expiration, and other losses. This data supports inventory reduction claims and helps identify waste trends, which can inform cost-control strategies. Maintaining supplier invoices and purchase orders allows businesses to verify the original cost of discarded goods, ensuring accurate financial reporting.

Regulatory compliance extends beyond tax filings. Health and safety laws require proper disposal of expired or contaminated products, and failure to comply can result in fines or liability issues. Keeping records of waste disposal methods, such as destruction logs or third-party waste removal invoices, demonstrates adherence to both IRS and local health department requirements.