If your home was destroyed in a wildfire or you lost all your belongings in a flood, the last thing you may be thinking about is taxes. Thankfully, federal law gives special tax accommodations to residents of disaster areas.
This post covers what you need to know about tax relief for natural disasters, including what kind of relief is available and how to qualify.
The IRS automatically applies special provisions granting affected disaster victims additional time to file and pay taxes. You may also qualify for other forms of relief.
The US president must make an emergency declaration for the IRS to authorize tax relief for natural disasters. The Federal Emergency Management Agency (FEMA) will then issue a disaster declaration designating the areas eligible for assistance.
The IRS provides federal tax relief to taxpayers affected by federally declared disasters. The president can declare any natural event a major disaster, including the following:
The IRS provides the following types of tax relief for natural disasters:
A major disaster may impede your ability to file taxes on time. The federal government knows this and postpones the filing deadline for tax returns. In most cases, you don’t need to request additional time. Instead, the IRS automatically applies the extension to affected taxpayers.
The IRS can also issue refunds faster to taxpayers in disaster areas. To qualify for expedited processing, you must claim losses from a disaster. You must file Form 1040 or Form 1040-X (for an amended return), plus Form 4684, to report your disaster-related losses.
Taxpayers whose property is lost, damaged, or destroyed in a declared disaster may deduct a “casualty loss” on their federal income tax return. Depending on which option benefits you the most, you may deduct the loss on the tax return for the year the loss occurred or the prior tax year.
If you’ve failed to file your tax return on time, the IRS may impose a financial penalty. However, the IRS may waive the penalty if you qualify for a tax penalty abatement.
One way to qualify is if you acted with “reasonable cause.” In other words, if a valid reason beyond your control caused your non-compliance. Natural disasters like fires, floods, or earthquakes may count as reasonable causes.
You may qualify for tax relief if you live, work, or own a business in a federally declared disaster area. Specifically, the IRS defines affected taxpayers as the following:
You may qualify for tax relief if you’ve been affected by a severe storm, earthquake, or other natural disaster. For more information, contact the experienced tax attorneys at Levy & Associates. Call us at 800.TAX.LEVY or contact us online 24/7.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.