Given the number of natural disasters that have occurred in our country (and the world) in the past year, it seems timely to discuss federal tax relief options available to individuals and businesses who reside or work in federally declared disaster areas. The President must declare a county or municipality as a Federal Disaster Area to qualify. Recently with Irene, President Obama declared certain area as disaster areas. However it pays to check back, as more areas like Berkshire and Franklin counties in MA were added later when FEMA was able to assess the damage.
The relief options are different for each situation. Indeed, from 2007 – 2010, the 10% of taxpayer adjust gross income exclusion was waived. However you can use the below as a guideline for what is typically offered. For individuals who reside in or work in these areas and also for businesses that operate in these areas, the following Irene related relief opportunities are available:
For those individuals and entities that properly filed extensions for 2010 tax returns, the due dates for filing are further extended without penalty:
Corporations: due 9/15 –> 10/31/11
Individuals: due 10/17 –> 10/31/11
Q3 estimates: due 9/15 –> 10/31/11
For employment and excise tax deposits due between 8/27-9/12/11, the IRS will waive penalties for failing to timely deposit the taxes as long as the catch-up deposit is made by 9/12/11
Casualty Loss Deductions
Taxpayers in affected areas can claim casualty losses as long as they are due to the disaster. These losses can be claimed on the current year return (2011) or prior year return (2010). This offers a great tax planning opportunity born out of unfortunate circumstances, especially for individuals/business whose financial picture looks significantly different between the 2 years. However, there are certain restrictions such as a timely insurance claim must be filed, a $100 “deductible” amount, and the entire deductible loss must exceed 10% of the individual taxpayer’s adjusted gross income. Businesses are able to deduct certain clean-up expenses.
Additionally, taxpayers must be careful to understand insurance reimbursements could possibly trigger a taxable gain. It is advisable to encourage taxpayers with substantial claims to consult their tax advisor.
The IRS is aware that there is potential that taxpayer records are partially or completely destroyed and waive the normal $57 fee for taxpayers who petition for copies of the tax returns. Also important to know is that many federal agencies require the taxpayer be current on all filings before the applicant can apply for disaster loans and grants.