Tax Relief Strategies After Natural Disasters

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One week after the Thomas Fire exploded from a brush fire to a raging inferno, thousands of firefighters made some headway in their struggle to contain it. But it’s only one of six major wildfires torching the state, which have destroyed more than 1,000 structures. The blaze is larger than all of New York City and about 20% contained as of Monday, December 11th, according to the fire protection agency CAL FIRE. If you or your loved ones are (have been) affected by the major storms, floods, and wildfires it is critical that their financial advisor is up-to-date on the latest in tax relief strategies that could affect your returns.

Prior to the California and the western states wildfire season (And the year isn’t over just yet), that has been one of the worst on record, we saw the hurricane headlines, and they were shocking. Three major storms stood out for their ferocity and damage. Hurricanes Harvey and Irma killed more than 100 in the United States and caused more than $150 billion in property damage. Puerto Rico was hit hard by Hurricane Maria. The island lost all power and nearly all cell service. In some places, these services have yet to be restored.

Here are some of the key considerations she shared to get you and your clients ready for busy season.

Leave-based donations. Employees and employers can help victims of disaster through leave-based donation programs. In these programs, employees pass on the cash value of their sick, vacation, or personal time. In exchange for their time, their employers make a charitable contribution to eligible Sec. 170(c) organizations. These donations must be made before Jan. 1, 2019. Employees may not use their leave-based donation as a charitable deduction on their income tax return, but employers may deduct it as a business expense. Right now, this type of donation is available for Hurricanes Maria, Harvey and Irma and the California wildfires. Check with your human resources department to see if your company participates.

Disaster relief for affected taxpayers. Those affected by the California wildfires and the three major hurricanes may be eligible for special tax relief and assistance from the IRS. Also, disaster victims can claim some disaster-related losses on either their 2016 or 2017 returns. The IRS offers a recap of key tax relief provisions available to storm victims. Some states are also extending deadlines for individuals who reside in disaster areas. The Council on State Taxation (COST) provides a document outlining available relief. 
Currently, the IRS is providing relief to seven California counties: Butte, Lake, Mendocino, Napa, Nevada, Sonoma and Yuba. Individuals and businesses in these localities, as well as firefighters and relief workers who live elsewhere, qualify for the extension. The agency will continue to closely monitor this disaster and may provide other relief to these and other affected localities, such as Ventura and North San Diego county.
The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.
In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes firefighters and workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization

Legislation. The Disaster Tax Relief and Airport and Airway Extension Act of 2017 became law at the end of September. This provides tax relief for those people and businesses that reside in areas affected by the three major hurricanes. Filers must have experienced a financial loss to be eligible for relief. Under this Act, filers may receive:

  1. Relief of penalty for early withdrawal of retirement fund for qualified hurricane distributions;
  2. An increase of loan limit from a qualified employer plan;
  3. An employment retention credit to employers equal to 40% of qualified wages up to $6,000, and;
  4. A more favorable tax treatment of the casualty loss.

A full list of provisions is available here.

Beware of fake charities. People want to help victims of disaster, and scammers are taking advantage of their goodwill. They often do this by using dummy websites that pose as real charities. Before you donate to any charity, search Select Check https://www.irs.gov/charities-non-profits/search-for-charities to make sure your money is going to the right people. Scammers may also claim to be from well-respected organizations. They reach out via phone, email, or social media to get Social Security numbers and other pieces of personal and financial data.
Disaster victims are also at risk. Con artists may pretend to be IRS representatives who are helping victims file casualty loss claims and get tax refunds. Disaster victims should call 866-562-5227 if they need IRS assistance.
The IRS offers extensive guidance for those seeking disaster relief. And for more information, visit the IRS page https://www.irs.gov/businesses/small-businesses-self-employed/faqs-for-disaster-victims

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