The Katrina Emergency Tax Relief Act of 2005, adopted by Congress to help residents in the hurricane-damaged areas of Louisiana, Mississippi and Alabama rebuild their homes and lives as quickly as possible, has a number of provisions that also apply to businesses. Here are key provisions that apply to businesses or that may be of interest to business owners:

Deadline for using insurance proceeds extended. To avoid taxes on insurance payments, the money must be used to replace damaged or lost property. Normally, businesses have two years to reinvest the money; individuals have four. In both cases, the Katrina act extends the deadline to five years provided the replacement property is located within the disaster area.

Tax incentives for employers. There are a number of tax breaks for companies that employ Katrina victims. For instance, the "Work Opportunity Tax Credit," which gives employers a tax credit for hiring individuals in certain target groups, has been expanded. It now includes anyone who lived in the area that is eligible for assistance under something called the "Stafford Act."
Employers within the assistance area can claim the credit for the next two years. Companies outside the area are also eligible for the credit if they hire WOTC individuals from the declared disaster area before the end of this year.

Small business tax credit. Companies in the Katrina disaster area with 200 or fewer employees are eligible for a tax credit of up to $2,400 for each employee they keep on the payroll. This is available even if the employee is working at another facility.

Penalty-free retirement plan withdrawals. Katrina victims who withdraw money from their company retirement plans or IRAs to make repairs or pay bills will not be hit with the usual 10 percent early withdrawal penalty even if they are under age 59 1/2.
The maximum withdrawal is $100,000. In addition, these individuals can spread the income tax on these withdrawals over three years instead of having to pay the entire amount in the year of the distribution.
If your company retirement plan offers "hardship" loans, the maximum amount is temporarily increased from $50,000 to $100,000.

Tax deadlines extended. Individuals who were supposed to submit income, estate or gift taxes will now have until Feb. 28 to do so. This includes filing tax returns and making estimated payments.

Incentives for charitable contributions. People who donate cash to a bona fide charity supporting Hurricane Katrina relief efforts will be able to deduct the entire amount. Normally, the deductible amount is limited to 50 percent of your adjusted gross income. Under the Katrina law, individuals or corporations that make charitable contributions in cash will be able to deduct 100 percent of the amount, provided the donation is made before Jan. 1.
The measure also waives the 10 percent income limitation on corporate donations to charity.

Tax break for use of personal vehicle. Volunteers who use their own car or truck in their charitable work can deduct 14 cents per mile - much less than the 48.5 cents per mile that the I.R.S. just approved for business use. Through the end of this year, this act raises the mileage deduction for Katrina aid workers to 34.2 cents per mile. It further states that if a volunteer is reimbursed for his or her mileage by the charity, he or she will not have to pay income tax on the amount.