Normally, corporations can only deduct charitable contributions up to an amount that equals 10 percent or less of their taxable income in the given tax year. Under the CARES Act, this limitation was bumped to 25 percent of taxable income.
More recently, the December 2020 Taxpayer Certainty and Disaster Tax Relief Act (TCDTRA) temporarily upped the limit for corporate charitable contribution deductions to 100% for qualified disaster relief contributions.
The IRS has released additional guidance for corporations considering using the deduction. Here’s what you need to know.
The new tax laws continue 2020 CARES Act changes that increase the above-the-line individual tax deduction to $300. In addition, the new rules double the deduction for married couples filing jointly to $600; the 2020 CARES Act did not have a provision that permitted couples to claim an additional amount over individual filers. Donations must be made in cash (rather than stocks or other assets like cars and clothing; credit cards and checks are OK) and go directly to a charity (donor-advised funds and private non-operating foundations do not count).
At the beginning of each fiscal year, the IRS releases guidance on its compliance priorities for tax-exempt and government entities (TE/GE) and explains how those priorities align with the agency’s strategic goals. This year, the IRS has streamlined its usual annual long letter approach into a short two-page letter and promised to provide quarterly updates on its compliance priorities; an effort to more accurately reflect the fluid nature of IRS operations and shifting compliance priorities throughout the year.
State charitable tax credits are a win for everyone; qualified charities receive the support they need at no extra expense to the taxpayer beyond what they would already owe to the state in taxes. Note that while credits are non-refundable (i.e. if you don’t end up owing enough in taxes to fully benefit from the credits, you will not get a refund from the state), unused credits can be carried forward for 5 years.
The IRS released a statement admitting that they sent certain tax-exempt organizations premature auto-revocation notices in error.
As the economic hardships of the pandemic continue to mount, many are looking for ways to help employees weather the crisis. After 9/11, the Internal Revenue Code was amended to allow employers to make direct payments to employees for qualified disaster relief under Section 139. Likewise, employee assistance funds are also commonly used vehicles to provide disaster relief and/or emergency hardship financial support for people affiliated with a particular employer. Both vehicles serve not only to protect one of your business’s most important assets — your people — by getting them back to work, but they also serve to boost morale, build community, and reduce employee turnover in the long-run.
On March 18, 2020, the Families First Coronavirus Response Act (the Act) was signed into law, and it goes into effect on April 2, 2020. It is the first relief package approved by Congress and requires certain employers to provide employees with emergency paid sick leave and expanded family and medical leave for specified reasons related to COVID-19.
On January 31, 2020, the IRS announced that it has released a new online version of Form 1023. The revised Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code is reformatted for electronic filing.