This year's hurricane season affected the lives of many people. But there's a small light in the darkness---anyone affected by Harvey or Irma can qualify for natural disaster tax relief.

When a natural disaster hits your home, no amount of aid seems like enough. A supportive smile and a hot meal is better than nothing, but no one can wave away the damage done by tornadoes, floods, fires and other catastrophes.

When an area experiences a natural disaster, it can take years to fully recover—if the area fully recovers at all.

Those who lived through 2017 hurricanes Harvey and Irma know that first hand.

But when you need to rebuild, there’s no sense in ignoring the help you can get. One of the least-utilized forms of aid is tax relief – mostly because people aren’t aware of it. If you’re eligible for this kind of relief and follow the rules correctly, you can qualify for tax breaks and benefits that could save you thousands.

If you’ve experienced a natural disaster, read ahead to see how the IRS can help.

Who is covered?

According to the IRS, anyone whose tax records are located in a federally designated disaster area is considered to be an “affected taxpayer,” and is therefore eligible for special benefits. This includes not only individuals, but also business owners, business entities, sole proprietors, or any shareholder in an S Corporation.

If your tax preparer is in a disaster area, you may also qualify to have your return postponed or extended. However, the IRS requires that you do the following to be eligible:

  • Call the Disaster Assistance Hotline at 1-866-562-5227
  • Explain that your necessary records are located in a covered disaster area
  • Provide the FEMA Disaster Number of the county where your tax preparer is located

Special rules for affected taxpayers

Here is a partial list of the special rules and allowances made for those impacted:

Free access to retirement accounts

Affected taxpayers can borrow up to $100,000 from a qualified employer retirement plan, such as a 401(k), to help pay for damage and get their lives back on track. Normally the limit is the lesser of $50,000 or 50 percent of their vested total. They’re also allowed to skip paying the 10 percent early withdrawal penalty for retirement accounts, such as IRAs and 401(k)s.

Anyone who took out funds from their retirement account for a home purchase or remodel can return the money back to their account with no penalty, as long as they do so by February 28, 2018.

Extended deadline for tax filing

Because the normal six-month extension for tax returns was on October 16, 2017, consumers who were affected by the recent hurricanes or California wildfires will be allowed to further delay their filing until January 31, 2018. However, this does not allow them to avoid penalties on any tax payments that were due in April 2017. The extension only applies to returns, not payments due.

Businesses and sole proprietors can also postpone their September and January estimated quarterly tax filings to January 31, 2018. October quarterly payroll and excise tax return deadlines have also been extended to January 31, 2018.

Use last year’s income for the Earned Income Tax Credit and Child Tax Credit

If you were affected by Hurricane Harvey or Irma, you’re allowed to claim last year’s income on your 2017 taxes to benefit from the Earned Income Tax Credit and Child Tax Credit.

This allows lower-income families to recoup some of the income they lost if they couldn’t work due to storms.

Casualty Deductions

If your personal home suffers damage due to a natural disaster, you can deduct the amount of damage done. First, you must subtract $100 from the amount of damage caused and then take away 10 percent of your adjusted gross income. Also, you can only deduct any amount not covered by your insurance.

If you have insurance and fail to file a claim, you cannot take the deduction because you must attempt to “reduce your loss by the amount of the reimbursement you received or expect to receive.”

You can take the deduction for the year the damage occurred or amend your previous tax return and take it for that year. The latter option is only for those who were in a “federally declared disaster area,” according to the IRS. Other specific rules and policies on the casualty loss are available here.

Remember to keep all receipts, proof of purchase and other documents related to the damage you incur. You must still provide evidence that the natural disaster caused a huge loss. Never assume the IRS will believe you.

Charitable Deductions

In order to facilitate more substantial aid to affected states, the IRS has made some modifications to its charitable deduction rules.

Contributions made to qualified charities before December 31, 2017 are not subject to any limitations. Normally, individuals can only deduct up to 50 percent of their gross income.

If you volunteered or sent in supplies to aid victims of natural disasters, you can also deduct the actual cost of driving, parking or shipping as it relates to your volunteering. Log your miles and keep all related receipts.

Charitable deductions go on the itemized deductions list on your taxes. So, if you normally take the standard deduction, none of this will apply to you. Most people take the standard deduction when they file their taxes, unless they’re homeowners whose mortgage interest is greater than the standard deduction.

Where to get help

If you typically use a software program like TurboTax or go to a brick-and-mortar chain like H&R Block when you file your taxes, you might want to look for something different. Tax rules can be complicated if you’re factoring in special natural disaster deductions. It might be more helpful to hire an accountant who has dealt with these kinds of returns. Even if the accountant charges more, they’ll probably save you more by correctly handling your situation.

The IRS has a phone number set up to assist those affected by a natural disaster. Call 866-562-5227 to get more information and to talk to a representative.

Summary

This year many people were affected by terrible hurricanes that left them without jobs and homes. But victims of natural disasters should know that they may qualify for substantial tax reliefs.

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Zina Kumok
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