Have you been affected by a natural disaster? If so, taxes may not be high on your list of priorities. But provisions specifically designed to help after disasters can make recovery easier both now and later. Here are five such provisions.
1. Delayed Tax Deadlines. Most federally-declared disasters come with an extension on time to file and pay your taxes. This includes those whose residence was in a disaster area or those whose tax preparer suffered a disaster. The specific extension is usually announced by the IRS after each major disaster, and it may be a set date or an extension until the same date as other allowable extensions (typically October 15).
2. Access to Retirement Accounts. Normally, you would pay a penalty for withdrawing from a 401(k) or IRA or be unable to borrow from it. However, these rules are often suspended for disaster relief, allowing you access to your own money to rebuild. You may be able to borrow up to $100,000 from your accounts and return it by a specified due date without penalty.
3. Casualty Losses. You may be able to deduct losses from the disaster on your taxes. Amounts spent to recover that are not reimbursed by an insurer or donated by others may be deducted when they exceed 10% of your income. This can be deducted when you file taxes for the year of the disaster or even deducted now on an amended return for the prior year — speeding up any refunds.
4. Additional Loss Deductions. Most taxpayers who choose to use the standard deduction cannot also include itemized deductions for things like casualty losses. However, this rule is sometimes waived for particular natural disasters, allowing you to claim both standard and certain specific deductions.
5. Tax-Free Charitable Assistance. If you receive financial assistance from charities after a disaster or you get help rebuilding, these are usually not forms of taxable income. Whereas most types of income a taxpayer receives are subject to taxes, special provisions are made for those helping disaster victims. This precludes you from getting a surprise tax bill in the spring.
Do you want to learn more about how your income taxes can help you recover? The best place to begin is to meet with an experienced tax preparation service in your state. They will help you understand your options, file amended returns, and meet new deadlines to avoid penalties. Contact a tax preparation service for more information.
