Natural Disaster Tax Relief
Natural disasters are active in the United States, and unfortunately can be very costly for individuals and even businesses. With hurricanes, tornadoes, floods, earthquakes, and wildfires sweeping through many areas of the United States, yearly damages are in the billions of dollars.
Luckily, IRS tax relief is available to individuals and businesses that have been affected by these natural catastrophic events. Learn more about who qualifies for natural disaster tax relief – and what relief is available to you and when.
Who Qualifies for Natural Disaster Relief?
A natural disaster qualifies for IRS tax relief if the President has made a major disaster declaration for the area. Qualifying individuals must work or live in and qualifying businesses must be located in areas designated by the Federal Emergency Management Agency (FEMA) as eligible for individual assistance or a combination of individual and public assistance. Here are recently announced natural disaster areas:
- Victims of earthquakes in Puerto Rico, see news release.
- South Dakota victims of severe storms, tornadoes and flooding, see news release.
- Texas victims of Tropical Storm Imelda, see news release.
- Victims of severe storms, straight-line winds, tornadoes and flooding in Mississippi, see news release.
- Texas victims of severe storms and flooding, see news release.
- Missouri victims of severe storms, tornadoes and flooding, see news release.
- Ohio victims of severe storms, straight-line winds, tornadoes, flooding, and landslides, see news release.
- Arkansas victims of severe storms and flooding, see news release.
- South Dakota victims of winter storm, snowstorm and flooding, see news release.
- Oklahoma victims of severe storms, tornadoes, straight-line winds, and flooding, see news release.
- Iowa victims of severe storms and flooding, see news release.
- Nebraska victims of severe winter storm, straight-line winds, and flooding, see news release.
- Alabama storm victims, provides other tax relief, see news release.
- Alabama victims of severe storms, tornadoes and straight-line winds, see news release.
- Tax Relief for victims of earthquake in Alaska, see news release.
How Do You Know if You Qualify for Natural Disaster Tax Relief?
To check if you are in a FEMA-designated area, visit the disaster relief page on IRS.gov.
What IRS Tax Relief is Available?
Affected taxpayers in qualifying FEMA-designated areas generally receive postponements on the following obligations.
- Individual and corporate tax returns
- Quarterly payroll and excise tax returns
- Estimated tax payments
Depending on the time of year, the taxpayer may receive filing and payment postponements or only filing postponements. For instance, a disaster occurring near April 15 may result in a postponement of the April 15 filing and payment deadline. A disaster occurring near October 15 would result only in a postponement of the extended filing deadline as all taxes were due April 15, even with an extension. (Note: The IRS doesn’t postpone payroll and excise tax payments, but will generally allow a short grace period for the payor.)
Check the IRS disaster relief page for other postponements that apply.
What if My Records Were Ruined in the Natural Disaster?
Disasters do not change the fact that tax forms and documentation go hand-in-hand. Photos or videos of damage and subsequent restoration can help establish property values, while receipts and canceled checks support claimed deductions. Records of payments from insurance companies and government agencies such as the Federal Emergency Management Agency, or FEMA, can prove their exclusion as income and limit tax exposure.
The IRS has no format requirements for substantiating money spent and received as long as the method used provides details, such as date, source, purpose and amount for disaster-related transactions.
Victims of federally-declared disasters need financial aid, but they don’t need the added burden of paying taxes on any money they receive. Qualified tax-exempt organizations may provide tax-free financial assistance to disaster victims.
Casualty Loss Tax Break
Tax law provides assistance through the casualty loss deduction. A key provision allows victims in federally declared disaster areas to file an amended return for the previous year to get a refund quickly, rather than wait until the disaster year-end. Taxpayers may benefit by amending their tax returns to take advantage of this tax break.
A casualty loss doesn’t translate into a dollar-for-dollar reimbursement of hardship expenses. It does, however, result in a lower tax obligation that can improve cash flow to pay for recovery. Taxpayers in some major disaster areas may be able to deduct losses even if the area isn’t eligible for IRS relief. See FEMA’s major disaster declarations listing.
Disaster Relief Legislation
Recent legislation provides additional relief for taxpayers affected by major disasters during 2018 and most of 2019. Relief includes allowing qualified disaster losses to be claimed as an additional standard deduction (for taxpayers who don’t itemize), penalty-free retirement plan distributions with repayment provisions, and more.
If you are a qualifying victim and have additional information, consider working directly with an experienced tax advisor. Find your advisor match now.