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07/10/2013

Tax Relief When Disaster Strikes

Tornado graphicOklahoma tornadoes, Missouri floods, Hurricane Sandy, Arizona fires, and the Boston bombing tragedy; even if we haven’t been a victim ourselves, most of us have watched the reports of recent damage and loss of life with empathy and dismay.

How such disasters may affect income taxes seems a petty question to consider, yet tax officials warn while there may be some tax relief for victims, they must still pay their taxes and produce proper records for claims.  Keeping that in mind, it may be time for you to consider whether you’re prepared should disaster strike.

Here’s how it generally works:  When a disaster occurs that affects a group of people; local, regional, state and/or federal authorities may request and/or declare a state of emergency or another special provision defining the event’s parameters and its victims. Those who qualify may receive special assistance for recovery, low interest loans and grants, temporary housing assistance and more.

When it comes to taxes, the IRS identifies taxpayers and businesses located in the covered disaster areas and then applies automatic filing and payment relief.  For example, tax filing and payment deadlines have been postponed until September 30th for individuals affected by the deadly May 20th Oklahoma tornadoes.  Affected businesses have also been provided extended deadlines to file and pay payroll and excise taxes.

This kind of relief may also apply to taxpayers who live outside a disaster area, but whose books, records or tax professional are located inside the affected area.  Boston bombing victims, their families, first responders and others affected by the tragedy were given a three month extension for filing and paying taxes.

Those who have suffered uninsured or unreimbursed disaster-related losses may claim casualty loss deductions on this year’s return or on an amended 2012 return.  Claiming these deductions on either an original or amended 2012 return may result in a tax refund fairly quickly, but waiting to claim the losses on a 2013 return could result in greater tax savings.

What you can do:  There are precautionary steps that taxpayers are urged to take to avoid even more discouragement should they be a victim of a natural or manmade disaster.

Make certain your important documents and tax records are stored electronically and duplicated to a “safe” place that is either at a separate location or on a protected online secure server.  Make certain you back up your computer records and data frequently.

Remember to document your valuables and business equipment.  Consider compiling a room-by-room list or video.  This will help you remember what you own and prove the market value of losses.  Remember to include documentation of possessions you may have stored at another location.

Review your personal and business emergency plan annually.  Businesses that use payroll service providers should also check to make certain the provider has a fiduciary bond in place in case the payroll provider defaults.  Meanwhile, the IRS provides answers online to frequently asked questions following a disaster.

Imagine what may happen if there is no electricity nor phone service for one week.  What would happen to your operations, income and expenses?  If you would like more information on how we can help you put together an emergency plan, properly store your tax records, calculate fair market value on your possessions and more, please contact us at McRuer CPAs.

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