The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA of 2020) temporarily increased the disaster relief contributions limit to up to 100% of a corporation’s taxable income, for contributions paid in cash for relief efforts in qualified disaster areas.
Qualified disaster areas are:
- Where a major disaster has been declared under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act
- Any major disaster declaration made by the president beginning on Jan. 1, 2020 and ending on Feb. 25, 2021, as long as it’s specified by the Federal Emergency Management Agency after Dec. 27, 2019, but no later than Dec. 27, 2020
- Disaster declarations can be found on FEMA.gov.
Qualified disaster areas do not include any disaster declaration related to COVID-19.
Qualified contributions must be paid by the corporation beginning Jan. 1, 2020 and ending Feb. 25, 2021. Cash contributions to most charitable organizations qualify for this increased limit. Contributions made to a supporting organization or to establish or maintain a donor advised fund do not qualify.
A corporation chooses the increased disaster relief contributions limit by computing its deductible amount of qualified contributions using the increased limit and by claiming the amount on its return for the tax year in which the contribution was made.
Corporations must obtain a contemporaneous written acknowledgment (CWA) from the charity before the corporation files its return, but no later than the due date for filing that return. New requirements state that the CWA must include a disaster relief statement, explaining that the contribution was used, or will be used, by the charity for relief efforts in a qualified disaster area.
Any CWA for qualified contributions made before Feb. 1, 2021 may not have the disaster relief statement and therefore the corporation’s deduction will not be challenged. For more information or if you have a tax issue, contact your Henry+Horne advisor.