What to Do with Taxes When Disaster Strikes?

When a disaster like a tornado strikes during tax season, the IRS can authorize tax relief for the victims. The process begins with a preliminary assessment conducted by FEMA at the request of the affected states. FEMA then issues a disaster declaration identifying the areas eligible for relief. For the IRS to offer relief, the President must sign a major disaster or emergency declaration for the areas assessed by FEMA. Once this declaration is made, the IRS automatically provides disaster tax relief and special tax provisions, granting affected individuals and businesses more time to file returns, pay taxes, and perform certain time-sensitive acts.

What Qualifies as a Disaster?

The President can declare a major disaster for any significant natural event. This includes hurricanes, tornadoes, storms, high water, wind-driven water, tidal waves, tsunamis, earthquakes, volcanic eruptions, landslides, mudslides, snowstorms, or droughts. Fires, floods, or explosions causing severe damage beyond state and local governments' capabilities can qualify for a disaster declaration.

What To Do After a Disaster?

For affected taxpayers to receive relief, it is crucial to reconstruct any records essential for tax purposes. After a disaster, these records may be necessary to substantiate any losses. Accurate loss estimation can significantly influence the amount of loan and grant money available. The IRS offers deadline extensions and other forms of relief to affected taxpayers. They provide loss workbooks to help individuals recall and prove the market value of lost items. Taxpayers can also deduct casualty and theft losses related to their home, household items, and vehicles on their federal income tax return if the loss is due to a federally declared disaster.

Preparation is key. Having a plan and understanding the steps to take in the event of a disaster can significantly ease the recovery process. The IRS's provisions are designed to help taxpayers navigate the aftermath of a disaster with as much support and clarity as possible. For more information, please get in touch with the professionals at The Center for Financial, Legal, & Tax Planning, Inc., at (618) 997-3436.