Increased Charitable Contributions this Year Under the Katrina Emergency Tax Relief Act of 2005, both individual and corporate taxpayers are permitted, in certain situations, to take a larger than normal charitable contribution deduction, but only for a limited time. For corporate taxpayers, the general rule is that charitable contributions are limited to 10% of the corporation's taxable income, with the excess carried over for 5 years. The new law waives the 10% limitation for cash contributions made between August 28 and December 31 to charitable organizations that aid in the relief efforts related to Hurricane Katrina. The Act also allows an increased charitable contribution to businesses that donate food and books out of inventory.
Individual taxpayers can deduct cash contributions without regard to the 50% of adjusted gross income (AGI) limitation when made between August 28, 2005 and the end of the year. The law also exempts these donations from the application of the phase-out of itemized deductions for high-income taxpayers. In order to deduct charitable contributions which exceed 50% of your AGI, the contributions must be made in cash or check, contributions of appreciated securities or other non-cash items are not eligible. The recipient just needs to be an otherwise qualified charitable organization and does not need to engage in Katrina relief efforts. For both corporations and individuals, an election needs to be filed with the tax return indicating that the taxpayer is taking advantage of the new law.
To ensure compliance with Treasury Circular 230, we are required to inform you that any advice concerning U.S. federal tax issues contained on this website is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code and was not written to support the promotion or marketing of any transaction or matter discussed herein. Application of tax regulations is specific to the individual or business and we recommend that you consult a qualified Komisar Brady tax professional for how the above information may apply to you.
