Handling tax obligations during a disaster can be overwhelming, adding to the stress of an already challenging situation. Natural disasters are unfortunately common occurrences, with the U.S. experiencing an average of more than eight events per year since 1980, resulting in trillions of dollars in damages. Chances are high that you or someone you know has been directly impacted by these calamities.
Natural disasters come in various forms, including hurricanes, tornadoes, floods, earthquakes, wildfires, and winter storms. The aftermath of such events can disrupt access to essential tax documents and hinder timely tax filing. Fortunately, the Internal Revenue Service (IRS) provides tax relief options for affected individuals.
What Must Happen for You to Qualify for Tax Relief?
Before the IRS can offer tax relief, a major disaster declaration must be issued by the Federal Emergency Management Agency (FEMA) as directed by the U.S. president.
Tax relief is available to those living in areas covered by FEMA’s Individual Assistance program. Individuals in federally declared disaster areas can benefit from the casualty loss deduction which expedites tax refunds.
Tax filing and payment extensions are also provided to affected individuals, even if they are not in a federally declared disaster area but have tax records in a FEMA-covered area.
What Forms of Tax Relief Exist?
Several tax relief options are available post-disaster, including filing and payment extensions, casualty loss deductions, and potential financial aid from the U.S. Small Business Administration (SBA) in the form of loans or grants.
Tax Filing and Payment Extensions
Qualifying areas automatically receive extended deadlines for tax filing and payment.
Casualty Loss Deduction
Residents in federally declared disaster regions may claim this deduction for property losses due to the disaster on current or prior-year tax returns for faster refunds.
SBA assistance is available to eligible entities in disaster areas to aid recovery through loans or grants upon filing necessary tax returns.
Natural Disasters That Qualify for Tax Relief
Natural disasters in 2022 and 2023 that qualified for tax relief impacted various states, including severe winter storms, hurricanes, and flooding.
Victims can access information on IRS’ disaster assistance page for details on available tax relief options for recent natural disasters within the past five years.
Other Relevant Tax Items Post-Natural Disaster
Securing a tax transcript to support claims and updating address information with the IRS are crucial post-disaster tasks.
Updating a changed address can be done through Form 8822 or a written statement, ensuring seamless communication with the IRS.
Do I Qualify for Disaster Relief If My Tax Preparer Is in a Disaster Area, but I Am Not?
Qualifying for tax relief is possible if your tax preparer is in a disaster area and cannot fulfill tax obligations on your behalf.
Do I Qualify for Disaster Relief if I Am a Shareholder in an S Corporation Located in a Disaster Area, but I Am Not in the Disaster Area?
Shareholders in affected S corporations qualify for relief if tax records are inaccessible due to a disaster.
Can I Get Tax Relief on Interest on a Pre-existing Outstanding Balance During the Disaster Relief Period?
While interest relief on prior year balances is not granted, late payment penalties may be waived under reasonable disaster-related circumstances.
The Bottom Line
Tax relief provided by the IRS is vital for those affected by disasters, offering extensions, deductions, and potential financial assistance. Ensure you have necessary documents and stay informed about available assistance through the IRS website.