As Hurricane Dorian threatens, the Internal Revenue Service encourages all taxpayers, whether individuals, organizations, or businesses, to develop an emergency preparedness plan.
Preparing for a disaster
Taxpayers can begin preparing an emergency plan that includes securing and duplicating essential documents, creating lists of property, and knowing where to find information once a disaster has occurred.
With that said, here’s how to develop an emergency preparedness plan.
1. Secure key documents and make copies
The IRS recommends gathering original documents, including tax returns, birth certificates, deeds, titles, and insurance policies, and placing them inside waterproof containers in a secure space. Copies of these documents should be kept with a trusted person outside the area a natural disaster may affect.
The IRS also recommends scanning the documents to store backup copies on electronic media.
2. Document valuables and equipment
Taking photos or videos of a home or business’s content can help support insurance claims or tax benefits for disaster-related losses. It is important to keep track of all assets, especially expensive and high-value items.
For help with compiling lists of belongings or business equipment, consult the IRS Disaster Loss Workbooks.
3. Employers should check fiduciary bonds
All employers using payroll service providers should ask the provider if it has a fiduciary bond in place. This bond could protect the employer in case of noncompliance by the provider.
The IRS encourages employers to create an EFTPS.gov account where they can better track their payroll tax deposits and sign up for email alerts.
4. Rebuilding documents
After a disaster has occurred, rebuilding records may be required for tax purposes, federal assistance, or insurance reimbursement.
If you lose your records during a disaster, you should visit the IRS Records Reconstruction web page.
5. Finding information after a disaster
In the event of a federally declared disaster, you can visit the Tax Relief in Disaster Situations web page for information. You can also call 866-562-5227 to speak with an IRS specialist trained to handle disaster-related matters.
Taxpayers affected by a disaster outside of a federally declared disaster area may qualify for disaster assistance. This applies if taxpayers are not physically located in a disaster area, but their records needed to meet a postponed filing or payment deadline during the relief period are located in a covered disaster area. To do so, taxpayers must identify themselves by calling 866-562-5227.
Claiming casualty losses
Casualty and theft losses must first be reported and calculated on Form 4684, Casualties and Thefts. You must use Section A for personal-use property and Section B for business or income-producing property.
For more information about claiming losses on Form 4684, you can see the IRS disaster-loss workbooks. If you have suffered loss or damage to your personal-use property, you can refer to Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property).
For losses related to business property, you can refer to Publication 584-B, Business Accident, Disaster, and Theft Loss Workbook.
When to deduct
The IRS states that casualty losses are deductible in the year you sustain the loss, which is generally the same year the casualty occurred.
If you have experienced losses in a federally declared disaster area, you can choose to treat casualty losses as if they occurred in the year immediately preceding the tax year in which you sustained the loss, and you can deduct the loss on your return or amended return for that prior tax year.