Alabama, California, Florida, Iowa, Louisiana, Michigan, Mississippi, Oregon, South Carolina, Tennessee, Utah and Puerto Rico. All eleven of these states, and one territory, had designated federal disaster areas throughout 2020 due to wildfires, hurricanes, severe storms, floods, and tornadoes, an earthquake, and a derecho. The South saw Hurricanes Laura, Sally, and Delta cause widespread damage, as well as had tornado relief provided. All in all for 2020, about 20% of the United States had some portion of land within a federally declared disaster area. That’s a significant amount of people affected. Were you one of them?
There is tax relief available for disaster victims, and we will go over these special rules and allowances, including who is covered. If your property or records are damaged or missing, let the IRS know immediately to find out what your options are. As always, the specialists at Axiom Tax Resolution Group are available and ready to help you with tax relief solutions, so contact us at any point with questions.
Who Can Get Tax Relief for Natural Disasters?
According to the IRS, if you had tax records located in a federally designated disaster area, you’re considered an affected taxpayer and are eligible for special benefits. An affected taxpayer can be an individual or a business entity.
If you’re not in an affected area, but your tax preparer is in a disaster zone and they have your documents, you might qualify for an extension or postponement of your return. To make sure your preparer is in said area you can call the Disaster Assistance Hotline, explain your tax information is located in a covered disaster area, and give them the FEMA Disaster Number of the county where the preparer is located.
Special Rules and Allowances
Usually if you try to borrow from your retirement plan or IRA early, you’re slapped with a 10% penalty fee, but under this special rule for disaster victims, you get free access to your retirement accounts. The IRS increases the limit you can borrow from a qualified employer retirement plan or IRA, and you won’t have to pay the penalty. If you use said funds to purchase a new home or remodel your current damaged home, you can put the money back into your account without paying additional fees. Keep in mind that there will still be due dates for putting the money back.
You may have the chance to claim your losses on the tax return for the previous year and get your refund quicker. You will have to submit an amended return to the IRS for this option.
In a typical tax year, filing for an extension on April 15 gets you an additional six months to get your taxes filed. That puts you in October. However, in the event of hurricanes, which often strike in early fall, or wildfires that occur during your extension, your filing date could get pushed to January of the next year. And 2020 made it even more complicated with the extension to July 15th because of COVID-19, on top of all the natural disasters.
You still owe any penalties on payments due in April, but you won’t get hit by a failure to file penalty. For businesses, payroll and excise taxes are sometimes put off as well.
If you lost a job this past year due to a natural disaster, check with the IRS to see if you qualify to use the previous year’s income for your Earned Income tax credits on this year’s return in hopes it will help you get a little income.
Casualty Loss Deduction
You may be able to deduct damage losses to your personal home. There are some caveats, but the IRS should be able to address these with you. One of them is that you can only deduct what your insurance didn’t cover. Keep every receipt and documentation related to the damage and repair. Don’t forget to provide evidence and proof the natural disaster caused the loss.
What the IRS Needs From You
Unfortunately, but understandably, the IRS doesn’t take just your word for anything. No matter what the disaster was/is or if your legal address was right in the middle of the federally determined disaster area, you still have to provide proof that your tax documents or property are toast. Establish property values and damage with photos and videos. Keep all receipts and canceled checks. Make sure you have records from your insurance company and any government agencies that gave you assistance.
If the past few years, especially the craziness of 2020 have made your tax situation even worse and you’ve still yet to file or pay for past years, contact Axiom Tax Resolution Group today! Don’t let April 15, 2021 sneak up and add to your ongoing tax issues. We’re here to help with tax relief solutions for your specific situation!