A new tax bill was passed by Congress and signed into law by President Trump over the weekend that pertains to special tax provisions relating to Hurricane Irma. Basically, all of Florida has been declared a disaster area for which federal relief is available. In addition to extending most tax filing dates until January 31, 2018, there are a couple of new and significant points this new law serves that will help out Florida taxpayers and other taxpayers in the disaster areas of Hurricane Harvey and Hurricane Maria.
In my blog post dated September 19, 2017, I said that you could be entitled to claim a casualty loss deduction on your tax return if you filed Form 1040 Schedule A and itemized your deductions. I said that a casualty loss could not be taken if you took the “standard” deduction. THIS HAS NOW CHANGED. All taxpayers in federally designated disaster areas will be entitled to claim a casualty loss – period. It does not matter if you itemize your deductions or take the standard deduction. You must document your casualty loss so keep good records. You can only claim your UNINSURED loss. If you have insurance, you must run through your insurance first. The casualty loss deduction only covers the amount of loss that your insurance does not cover.
There are several points of special tax relief if you have to reach in to your retirement account for funds to get through the hurricane damages. If you are under age 59 ½ years old and would be expecting to pay a 10% penalty for withdrawing funds from your retirement account, the 10% penalty has been waived for hurricane related withdrawals. A special rule has been enacted for withdrawals for hurricane purposes up to $100,000 made between September 4, 2017 and December 31, 2018. There is a repayment period of up to 3 years to return the money to your retirement account and avoid the tax bite. If you do not plan on repaying your retirement account for the withdrawal, you have the option to report the distribution in full in the year you take it or over a 3 year period. If you borrow money from your 401-K account, the allowable borrowing amounts have been increased and the repayment period has been extended by 1 year.
Employers who paid employees for days in which the business was closed and unable to operate will be entitled to a 40% tax credit for wages paid TO EACH EMPLOYEE. There is a $6,000 cap on each employee for their credit eligible wages. Assume you were closed for 1 week and your paid your employee $1,000 for that week’s work. You are entitled to claim a $400 (40% of $1,000) tax credit. This credit reduces the amount of tax you owe to the IRS. Assume further that there are 5 employees in this situation. Now your tax credit becomes $2,000. Just remember that the maximum amount of wages that can be counted is $6,000 per employee but there is no limit on the number of employees. I hope everyone is back to work by now but this covers the period of September 4, 2017 through December 31, 2017. The starting date is the day you were forced to close and ends on the day you were able to return to “significant operations” at your normal place of employment. There is a question in my mind as to what happens if you have to temporarily shut down for new equipment installation or building repairs. For that answer, we will have to wait and see how the regulations are written. All employers should take extreme care to document the days you were unable to operate and the wages you paid during that period.
My final comment is to remind you to be aware of scammers who represent themselves as charitable organizations. Also, be sure to get the required documentation for your charitable contributions.