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Taxes Play a Part in the Relief After Natural Disasters

10/02/2017  |  By: Brian McCuller, JD, CPA, Shareholder, Practice Leader Tax

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President Donald Trump on Sept. 29 signed into law tax relief for hurricane victims.

The bill (H.R. 3823) includes relief measures such as lowering the threshold for deduction of personal casualty losses and allowing hurricane victims to withdraw funds from their retirement accounts without a penalty.

Relief for citrus growers is expected to be included in a separate bill under consideration this month.

https://www.congress.gov/bill/115th-congress/house-bill/3823

When disasters strike, like the recent hurricanes, taxes are not the first thing that come to mind. Rescuing life, providing relief and restoring individuals and businesses back to normal is what matters. However, for better or worse, taxes do play a part. The disruption and destruction caused by natural disasters to both individuals and businesses make tax relief necessary and helpful to the restoration process.

Key Areas of Federal Tax Relief

At the federal level, there are some key provisions that you need to be aware of such as what qualifies as a disaster area loss, a casualty loss, and qualified disaster relief payments.

Disaster Area Losses

federally declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance. 

Casualty Losses

A casualty loss can result from the damage, destruction, or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake, or volcanic eruption. If your property is personal-use property or isn't completely destroyed, the amount of your casualty loss is the lesser of:

  • The adjusted basis of your property, or
  • The decrease in fair market value of your property as a result of the casualty

If your property is business or income-producing property, such as rental property, and is completely destroyed, then the amount of your loss is your adjusted basis. You must reduce the loss, whether it's a casualty or theft loss, by any salvage value and by any insurance or other reimbursement you receive or expect to receive. The adjusted basis of your property is usually your cost, increased or decreased by certain events such as improvements or depreciation.

Individuals and businesses that suffer losses in a federally declared disaster area may elect to deduct the loss either in the tax year in which it occurred or in the immediately preceding tax year.

If your loss deduction is more than your income, you may have a net operating loss (NOL). You don't have to be in business to have a NOL from a casualty.

Generally, you may deduct casualty and theft losses relating to your home, household items and vehicles on your federal income tax return. You may not deduct casualty and theft losses covered by insurance, unless you file a timely claim for reimbursement and you reduce the loss by the amount of any reimbursement or expected reimbursement.

Qualified Disaster Relief Payments

Qualified disaster relief payments include payments from any source to or for an individual paid as a result of a qualified disaster:

  • to pay or reimburse reasonable and necessary personal, family, living, or funeral expenses, including personal property expenses;
  • to pay or reimburse necessary expenses incurred for the repair of a personal residence, including one that is rented, or its contents;
  • including payments made by a common carrier on account of death or personal physical injury; and
  • including amounts paid by a federal, state, or local government to promote the general welfare.

Audit Relief

Taxpayers may also obtain audit relief. It has been reported that IRS agents have been informally telling tax professionals that audit and collection activities in disaster areas will be delayed until January 2018.  This is not a formal policy. However, if a taxpayer would like to keep their case going to obtain closure sooner, they can contact the IRS.

Tax Return Deadline Relief

Hurricane Harvey victims in parts of Texas have until January 31, 2018 to file certain individual and business tax returns and make certain tax payments. This includes an additional filing extension for taxpayer with valid extensions that run out on October 16, and business with extension that run out on September 15. The IRS has also announced that it will not impose a tax penalty when dyed diesel fuel is sold for use or used on the highway in Florida due to shortages of undyed diesel fuel caused by Hurricane Irma.

Proposed Legislation

Legislation has been proposed to lower the threshold to deduct personal casualty losses and expand the benefit to taxpayers who don’t itemize. The bill would also allow victims to withdraw funds from their retirement accounts without a penalty and suspend the limit on deductions for donations to hurricane relief. The bill would also provide for a tax credit of up to $6,000 for the wages paid to an employee from a core disaster area. By the time this article is published, this legislation could be passed or rejected, but chances are some type of related legislation will be enacted to provide additional relief.

For more info on tax relief for the recent hurricanes, contact LBMC or visit https://www.irs.gov/site-index-search?search=hurricane+harvey+and+irma&field_pup_historical_1=1&field_pup_historical=1

For more information on federal tax relief for Hurricane Harvey victims, contact LBMC or visit https://www.irs.gov/newsroom/help-for-victims-of-hurricane-harvey

For more information on federal tax relief for Hurricane Irma and Maria victims, contact LBMC or visit https://www.irs.gov/newsroom/help-for-victims-of-hurricanes-irma-and-maria

Key Areas of State Tax Relief

When disasters strike, generally the states directly involved are the first to provide relief similar to that at the federal level such as the postponement of return due dates and other applicable relief depending on the situation. Other states, not directly affected, generally follow by allowing taxpayers located in federally declared disaster areas or impacted by the disaster to request filing extensions and obtain relief.

Texas Relief

For example, in Texas, the Comptroller is granting businesses located in the federally declared disaster areas in Texas that are not required to report (file) electronically, an automatic 30-day extension to complete the August monthly sales and use tax reports due Sept. 20, and quarterly sales and use tax reports due Oct. 20. Taxpayers are not required to report electronically if they paid less than $50,000 in sales and use tax in the preceding state fiscal year (Sept. 1 to Aug. 31). Taxpayers in the Texas disaster area who are not required, but choose to report electronically will also receive the automatic extension.

For 2017 Texas franchise tax reports with valid extensions to Nov. 15, the Comptroller’s office is granting an automatic extension to Jan. 5, 2018 for businesses located in the federally declared disaster areas in Texas.

Other taxpayers affected by the natural disasters may request a 30-day extension by calling the Comptroller's Taxpayer Services line at 800-252-5555 or emailing ExtensionRequests@cpa.texas.gov.

Governor Greg Abbott has suspended collecting all state and local hotel occupancy taxes from the victims of Hurricane Harvey or personnel participating in hurricane relief efforts. The hotel tax suspension began Aug. 23, 2017, and goes through Sept. 22, 2017.

The Governor issued a temporary waiver of IFTA requirements (including tax and licensing requirements) when delivering relief supplies and fuel into Texas.

The Comptroller will not impose or collect state motor fuel tax on dyed diesel fuel sold and used on-highway from Aug. 25 through Sept. 15, 2017 in the state declared disaster areas.

The Comptroller will refund tax paid on clear diesel fuel purchased and used in off-highway equipment from Aug. 25 through Sept. 15, 2017 for hurricane relief and recovery efforts in the state declared disaster areas.

Florida Tax Relief

In Florida, for Florida corporate income tax filers, the Department will follow the tax relief granted by Internal Revenue Service regarding postponement of return due dates. Florida corporate income/franchise tax returns originally due, or due on extension, between August 24, 2017 and January 1, 2018 are now due by February 15, 2018.

Other States

Other states may offer a variety of tax relief. For example, Tennessee allows out-of-state taxpayers affected by natural disasters to request a filing extension for their Tennessee tax returns. The Department of Revenue will work with taxpayers to consider, on a case-by-case basis, the requests for relief from taxpayers who are unable to file tax returns because of the impact of hurricanes or other natural disasters. Taxpayers that are granted an extension for disaster relief will not be assessed penalty for payments made on or before the extended due date. However, interest charges will apply.

Requests for extensions should include an explanation of why the extension is needed and the amount of time that is being requested for an extension. If possible, affected taxpayers should make requests for extensions before the original due date of the return.

Georgia is simply postponing until January 31, 2018, certain deadlines for individuals who reside, and businesses whose principal place of business is located, in the disaster area. Keep in mind, the person or business must have been affected by the disaster. The postponement applies to return filing, tax payment, and other time-sensitive acts as specified in the Internal Revenue Service relief that have either an original or extended due date occurring on or after Aug. 23, 2017 and before Jan. 31, 2018. This includes taxpayers who had a valid extension to file their 2016 return that was due to run out on Oct. 16, 2017. It also includes the quarterly estimated income tax payments originally due on Sept. 15, 2017 and Jan. 16, 2018, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2017.

The postponement also includes return filing, tax payment, and other time-sensitive acts related to Georgia tax types not administered by the IRS such as Georgia sales and use tax, but does not apply to International Fuel Tax Agreement interest. This includes monthly sales tax returns originally due September 20, 2017, October 20, 2017, November 20, 2017, December 20, 2017 and January 22, 2018. It also includes quarterly sales tax returns due October 20, 2017 and January 22, 2018, as well as annual sales tax returns due January 22, 2018.

Taxpayers who reside in or have a business located in counties as specified by the IRS will qualify for the relief. If additional areas are identified by the IRS, relief is also provided to those areas. The relief also applies to taxpayers not in the disaster area, but whose records are located in the disaster area.

For an up-to-date list of tax relief offered by state, contact LBMC or visit http://cost.org/WorkArea/DownloadAsset.aspx?id=96838 and http://www.cost.org/

https://www.irs.gov/newsroom/irs-offers-help-to-hurricane-victims-a-recap-of-key-tax-relief-provisions-available-following-harvey-irma-and-maria

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Posted in: Financial Solutions, Tax
Tagged with: Business Tax
Taxes Play a Part in the Relief After Natural Disasters