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CHARITABLE CONTRIBUTIONS – KATRINA TAX RELIEF Suspension of percentage limitations For individuals: the deduction for qualified contributions is allowed up to the amount of the taxpayer’s adjusted gross income. It cannot create a net operating loss. Any amounts above that will be suspended and carried over to future years. The prior law only allowed contributions that were below 50% of adjusted gross income. Individuals can deduct the full amount of their contributions this year up to their adjusted gross income. The capital gain limitation for donation of appreciated properties still applies to 30% of adjusted gross income. This provision is applicable from August 26, 2005 to December 31, 2006. Increase in standards mileage for charitable use of vehicles A new provision applies for purposes of contributions made during the period beginning on August 25, 2005, and ending on December 31, 2006. The provisions allows a taxpayer who uses a vehicle in providing donated services to charity solely for the provision of relief related to Hurricane Katrina to compute the taxpayer’s charitable mileage deduction using a rate equal to 70% of the business mileage rate (40.5 cents per mile between January 1, 2005, and September 1, 2005; and 48.5 cents per mile between September 1, 2005 and January 1, 2006) rather than the charitable standard mileage rate (currently 14 cent per mile). The present rate (14 cents per mile) applies if a taxpayer fails to substantiate that the expense are incurred for the provision of relief related to Hurricane Katrina. Mileage reimbursements to charitable volunteers excluded form gross income Under the new provision adopted for the period August 25, 2005, to December 31, 2006, reimbursement by an organization to a volunteer for the costs of using a passenger automobile in providing donated services to charity solely for the provision for relief related to Hurricane Katrina is excludable from the gross income of the volunteer up to an amount that does not exceed the business standard mileage rate prescribed for business use, provided that recordkeeping requirements applicable to deductible business expenses are satisfied. Charitable deduction for contributions of food inventories Any taxpayer engaged in a trade or business is eligible to claim the enhanced deduction for donations of food inventory (the lesser of 50% of markup or 2 times the adjusted basis of the inventory). For taxpayers other than C corporations, the total deduction for donations of food inventory in a taxable year generally may not exceed 10 percent of the taxpayer’s net income for such taxable year from all sole proprietorships, S corporations, or partnerships from which contributions of food are made. Restaurants, bakeries, stores should consider this deduction.
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