Tax Help for Disaster Loss
Disasters happen. The financial impact of the blizzards that hit the Northeast and the Midwest will doubtlessly be felt by both business owners and individuals. It’s good to keep in mind that there are special tax provisions designed to help in recovery. The National Association of Enrolled Agents (NAEA) has advice for those dealing with disaster loss.
First off, like the Boy Scouts, be prepared. Try to be as paperless as possible by scanning your tax documents and saving them to “the cloud” or onto a CD or DVD. If you choose the disc option, keeping it somewhere other than your home or business is a good idea – if buildings are damaged in the disaster, you’ll be glad you kept them off premises.
It’s also very important to catalogue your valuables and business equipment so that if they are damaged you can prove the market value of items for insurance and casualty loss claims. If you don’t have time to list your valuables before the mudslide or the snow-laden roof collapses, take pictures or videos and do a complete inventory of damage before the mess gets cleaned up. After the cleanup process has begun, people often don’t remember what they threw away. Be sure to photograph the inside and outside of the house or business and as much personal property damage as possible.
IRS Publication 584, “Casualty and Disaster Loss Workbook,” will help you conduct a room-by-room inventory of damage. The workbook may be obtained by visiting the IRS website.
A disaster loss is tax deductible to the amount over any insurance reimbursement, with two limitations: you must reduce each loss by $100; you must further reduce the total of all losses by 10 percent of your adjusted gross income. Tax deductions for buildings with structural damage require a qualified appraisal and records of the repairs to restore the building to its previous condition. Keep in mind that all claims for damage must first be submitted to the property owner’s insurance carrier, even if the property is not covered, in order to take a casualty loss deduction.
If you have a casualty loss from a federally declared disaster that occurred in an area warranting public or individual assistance (or both), you can choose to treat the loss as having occurred in the year immediately preceding the tax year in which the disaster happened, and you can deduct the loss on your return or amended return for that preceding tax year. Keep in mind, this is only true if the President has declared your area a federal disaster area – otherwise, you must claim the casualty or disaster area loss in the year it occurred.
To make sure you take advantage of every tax provision to help you through a disaster, it would be wise to consult a licensed tax professional. Enrolled agents (“EAs”) are licensed by the U.S. Department of Treasury and overseen by the IRS. EAs provide tax preparation, tax advice, and tax planning services in addition to helping taxpayers resolve problems with the IRS.