Each year, approximately 900,000 Americans are adversely affected by natural disasters, such as hurricanes, droughts, forest fires, and earthquakes. There are many tax relief options available to the victims of natural disasters. Most recently, the Internal Revenue Service (IRS) has provided Hurricane Matthew victims with additional filing extensions.
Tax Relief Options for Natural Disaster Victims
There are several tax relief options for natural disaster victims, including tax-compliance deadline extensions, casualty loss deductions, and tax-free natural disaster assistance.
Tax-compliance deadline extensions are the most common form of natural disaster tax relief. Most taxpayers must pay tax by the April 15th deadline. But the IRS will extend this, and other deadlines, for taxpayers adversely affected by natural disasters to reduce the stress of having to file taxes. The IRS will also allow extensions for businesses to send payroll taxes. However, if a taxpayer does not meet the extended deadline, interest and penalties may apply.
Casualty loss deductions are also available to natural disaster victims. Under this tax relief option, a taxpayer may deduct hardship expenses from their taxes. Since casualty loss is a deduction, it is not a dollar-for-dollar reimbursement. The deduction does, however, lower tax liability and can lead to a larger refund.
It is also important to note that natural disaster assistance is tax-free. Employees who receive additional financial assistance for natural disaster relief from their employers do not need to pay tax on the extra financial assistance.
Filing Extensions for Hurricane Matthew Victims
Like most natural disasters, the IRS has issued tax-compliance deadlines extensions for the Hurricane Matthew victims. Tax return and payment deadlines for hurricane victims in parts of North Carolina, South Carolina, Georgia, and Florida have been extended to March 15, 2017 for some tax payments. This extension is available to taxpayers with valid October 17, 2016 filing extensions and taxpayers with the January 17 deadline for making quarterly estimated tax payments. Also, the October 31 and January 31 deadlines for businesses’ quarterly payroll and excise tax returns are now extended to March 15, 2017.
How Do Natural Disaster Victims Obtain Tax Relief?
The threshold requirement for obtaining tax relief is to live in a presidentially proclaimed “disaster area.” Usually, if the taxpayer’s IRS address of record is within the designated disaster relief area, the taxpayer will automatically receive filing and penalty relief without having to contact the IRS.
For the casualty loss deduction, taxpayers are also required to provide documentation for expenses incurred. It is important to take photos, keep receipts, and keep records of insurance payments to provide the evidence required for tax relief.
Authored by Robin Sheehan, LegalMatch Legal Writer