Tax Tips For Hurricane Season
Disaster can strike anywhere, any time. For those of us living in South Florida June first signals the start of hurricane season. While we generally focus on readying our home and keeping our loved ones safe, we must also take steps before and after a disaster to prepare for its impact on our taxes.
BEFORE A DISASTER
If you have important personal or business documents in paper format, these should be scanned and stored electronically. Make sure that electronic documents are backed up.
In the event you are ever audited, loss of records due to a disaster is not a winning defense. At most the IRS will provide you additional time to obtain the documents. Failure to provide substantiation for an item on a return will result in disallowance.
Photograph your home and business before and after the disaster. An actual inventory of the contents of your home and business is also helpful. This will make it easier to make claims against your insurance company for any loss due to a natural disaster. It may also be useful for claiming a casualty loss deduction on your return.
AFTER A DISASTER
Tax filing and payment deadlines do not change as a result of a natural disaster. If the area is federally declared as a disaster area the IRS will issue a notice setting forth the applicable postponement period, which can be up to one year. This does not constitute an extension of the deadline; it allows the IRS to disregard the time period for filing and paying during the postponement period.
The IRS notice will specify which states and counties can take advantage of the postponement period. A taxpayer does not have to reside/operate in the disaster area to be considered a taxpayer “affected” by the disaster. A taxpayer is affected by the disaster if records needed to comply with filing and payment deadlines are located in a declared disaster area.
It is important to know that the postponement relief does not apply to all tax filings and deadlines. For employers, the postponement does not apply to the duty to deposit employment taxes, or to the duty issue W-2s and 1099s. Additionally, the postponement does not apply to interest accruing on tax balances which were outstanding prior to the disaster.
In the event a taxpayer incurs a casualty loss as a result of the disaster, it may be possible to elect to deduct the loss in the year prior to the disaster by filing an amended return. This would provide a taxpayer with a refund of taxes previously paid at a time when cash may be in short supply as a result of the disaster.
The 2017 hurricane season is forecast to be a busy one. Let’s hope that these predictions are wrong. Just in case, prepare your financial documents so you are ready for any storm. Don’t forget that I am here to provide tax assistance no matter the weather!