In 2024, there were at least 24 confirmed weather/climate disaster events with losses exceeding $1 billion each in the United States. Millions of people across the country were affected by hurricanes, fires, tornados, and flooding. If you were one of them, the federal government has issued tax relief to help you recover.
As you plan to file your 2024 tax returns, consider these tax relief programs and benefits to help you get resources to recover and rebuild after a natural disaster.
Do I Qualify for Tax Relief After a Natural Disaster?
The government offers a variety of relief programs for taxpayers who both live in or have connections to areas impacted by natural disasters. Affected taxpayers may include:
- Individuals
- Business entities
- Sole proprietors
- Shareholders in S corporations
Taxpayers may be affected if they are located in a federally declared disaster area. They may also be affected if they need records from areas that have been impacted. For example, if your tax preparer is in a federally declared disaster area, you may qualify for tax relief options.
The states most impacted by natural disasters in 2024 include Florida, Georgia, North Carolina, South Carolina, Tennessee, and Virginia. If you aren’t sure if you are in an area that has been declared a disaster, use the IRS tool to look up a specific region. If you still aren’t sure if you are impacted, call the Disaster Hotline at 866-562-5227.
What Tax Relief Is Available?
Depending on the level of impact of the natural disaster and your tax status, you may qualify for one or more types of relief. Here are five forms of tax relief offered to those impacted by a natural disaster.
#1) Postponed Tax Deadlines
Many taxpayers in affected areas may be granted postponed tax deadlines. The IRS also provides penalty relief for businesses that make payroll and excise tax deposits, among other business taxes.
While you may have additional time to file, we recommend you file on time if possible.
There is a risk the IRS may overlook the postponed timeline, and taxpayers could get a fine that they will need to dispute. If you do need extra time to file, we recommend obtaining copies of any IRS notices regarding the postponement and keeping them in your records in case you need to file a dispute.
Related: Planning to File a Tax Extension? Here’s What You Need to Know
#2) Casualty Loss Deductions
Businesses and individuals who experienced damage from a disaster can claim deductions for property damage or loss not covered by insurance. Disaster losses can include personal property as well as business and income-producing property owned by C corporations, S corporations, and partnerships (IRS).
These deductions are related to repairs needed to restore a property to its pre-disaster state, but they cannot be excessive or exceed the property’s value. To determine the value of losses, taxpayers should use documentation such as insurance company declarations and contractor estimates. Taxpayers are also permitted a good-faith estimate of losses up to $5,000.
Taxpayers may claim deductions on the tax return of the year the losses incurred, or they can adjust the previous year’s return to receive an expedited refund claim.
Related: These 6 Small Business Tax Deductions Are Overlooked Too Often
#3) Employee Retention Credit
Any business in an affected area that continued to pay or incur wages after the business became inoperable because of damage from a natural disaster may be eligible for an employee retention credit on their taxes (IRS).
Eligible employers may be able to claim a credit equal to 40% of up to $6,000 of qualified wages paid to or incurred for each eligible employee.
Related: 40+ Questions To Ask Your Business Accountant
#4) Accelerated Depreciation
Accelerated depreciation allows businesses to deduct a larger portion of the cost of qualified property or assets in the year they are placed into service, rather than spreading the deduction out over several years.
Businesses can claim bonus depreciation for qualified property allowing them to recover the costs of rebuilding or repairing damaged assets more quickly. Taxpayers must have documentation such as receipts, invoices, and proof that the assets were placed into service after the disaster (IRS).
Related: Want to Avoid a Surprise Tax Bill? Do This Right Now.
#5) Penalty-Free Early Retirement Withdrawal
Early withdrawals from retirement accounts such as 401(k)s or IRAs before the age of 59½ incur a 10% early withdrawal penalty, but taxpayers impacted by a natural disaster may be eligible to bypass these penalties.
The maximum amount eligible for penalty-free withdrawal is often capped (e.g., $100,000 under recent legislation), and the withdrawn amount will still be subject to income tax.
Related: 5 Serious Tax Problems Caused by Bad Bookkeeping
Do You Need to Pay Taxes on FEMA Payments?
No. If you received funds from the Federal Emergency Management Agency (FEMA) to assist with recovery, you are not obligated to pay taxes on the money received. FEMA payments are not considered income and are not subject to income tax, self-employment tax, or employment taxes.
Are Hurricane Clean-Ups Tax Deductible?
In some cases, yes. Hurricane clean-up may qualify under a casualty loss deduction. Clean-up costs are generally only deductible if the hurricane occurred in a federally declared disaster area.
Talk to a Professional About Disaster Related Tax Relief
The IRS has programs to provide support for individuals and businesses impacted by devastating natural disasters, but if you plan to use any of these programs, we have an important recommendation.
Before you take advantage of any disaster tax relief programs — talk to a professional tax accountant.
While programs can help you get resources to recover, they can also create future headaches if you do not follow the proper procedures or if you do not meet the full criteria for eligibility.
If you think you have been impacted, talk to a professional tax accountant and discuss your options right away. Don’t wait until tax time. Talk to a professional today about how you can take advantage of any programs that are available to you.
CFO2U is here to help. Schedule a free call with our team to talk about your situation and begin to make a tax plan that helps maximize your benefits this year.
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