Hurricane Ian definitely brought destruction, but it also brought tax relief for those who were affected. Taxes are likely the last thought one may have if you were affected by Hurricane Ian, but know there is tax relief out there for those affected by Hurricane Ian.
For example, the Internal Revenue Service (the “IRS”) has provided extension relief for those individuals and businesses until February 15, 2023, to file tax returns and make payments to the IRS for individuals and households affected by Hurricane Ian that reside or have a business anywhere in the state of Florida. This applies to individuals who had a valid tax extension due to run out on October 17, 2022. Note, if tax payments relate to 2021 returns that were due on April 18, 2022, these are not eligible for this relief.
This relief applies to quarterly estimated tax payments, normally due on January 17, 2023, and to the quarterly payroll and excise tax returns normally due on October 31, 2022, and January 31, 2023. Businesses with an original or extended due date also have additional time, including calendar-year corporations whose 2021 extensions run out on October 17, 2022. In addition, penalties on payroll and excise tax deposits due on or after September 23, 2022, and before October 10, 2022, will be abated as long as the tax deposits are made by October 10, 2022.
If you receive a late filing or payment penalty notice from the IRS, the IRS encourages you to call the number on the notice letter and request that the penalty be abated.
There is also some additional relief that has been in the tax code prior to Hurricane Ian’s destruction, such as Qualified Disaster Relief (Code Section 165) and Disaster Relief Payments (Code Section 139).
Qualified Disaster Relief
Qualified Disaster Relief will apply if you are affected by a “Qualified Disaster,” which is a disaster that is federally declared (I will refer to this as “Section 165 Relief”). Hurricane Ian and the state of Florida have been declared a “federal disaster” qualifying those losses associated with Hurricane Ian as “Qualified Disaster Relief.”
What does this mean and how can I take advantage of this?
In general, to qualify for Section 165 Relief the following need to be met:
- Must be attributable to a federally declared disaster;
- You must include the FEMA code assigned to the disaster (for Hurricane Ian, it is: DR-4673-FL);
- The loss must exceed $100.00 per causally, then increases to $500.00 for net qualified losses. Note, you must reduce your personal casualty loss by $500.00 (this is after any salvage value or reimbursement);
- There is a 10% adjusted gross income limit, but this does not apply to net qualified disaster losses. Taxpayers are allowed a deduction for the entire portion of the disaster loss, not covered by insurance or other forms of reimbursements (such as from employers), that exceeds $500; and
- Taxpayers may increase their standard deduction by the amount of their net qualified disaster relief rather than itemizing deductions on Schedule A.
Your net qualified disaster loss is determined based on preparing the IRS Form 4684, which your accountant or CPA can help you prepare. It is highly encouraged that taxpayers work closely with their accountants and CPAs on claiming Section 165 Relief and/or Section 139 Relief (as defined below). It is imperative that all taxpayers keep adequate records of all repairs, purchases, and reimbursements. The failure to maintain these records and receipts can cost you the relief.
Section 139 Relief
Disaster Relief Payments (I will refer to this as “Section 139 Relief”) states that gross income shall not include any amount received by a taxpayer that qualifies as a “qualified disaster relief payment.” Let’s break this down. A “qualified disaster relief payment” is any amount paid to or for the benefit of a person to reimburse or pay reasonable and necessary personal, family, living or funeral expenses resulting from a qualified disaster. In addition, amounts paid to reimburse or pay for reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or the repair or replacement of the contents of a personal residence that is attributable to the qualified disaster will also qualify.
Section 139 Relief is common in the employer-employee context. Employers are able to pay these certain expenses for employees under Code Section 139 as deductible expenses that the employee or independent contractor will be able to exclude from income, while the employer can deduct, and not have to pay any employment taxes, workers compensation, unemployment compensation or pension contributions.
It is important to note that both Section 165 Relief and Section 139 Relief are limited to the extent that the monies expended are not reimbursed by insurance or other forms of reimbursement. Thus, as mentioned earlier, you cannot qualify for both Section 165 Relief and Section 139 Relief for the same repair or purchase.
I will stress this again, it is vital that you keep and maintain adequate records of all repairs, purchases, and payments received in order to qualify for this relief. So if the cashier asks if you would like your receipt say “yes.”
Those needing tax assistance may reach me at matthew.brust @henlaw.com or by phone at 239-344-1147.