Disaster Tax Services
Disaster Tax Services
Disaster recovery begins with a discussion of the many details of your particular situation. John Trapani, CPA is not only knowledgeable about the tax and financial aspects of the recovery process, but also has personally experienced a major loss as a result of a large disaster.
If A Disaster Has Occurred Recently
If a disaster has recently affected your home/and or your business, there are important steps that you should take immediately to protect the financial value of your assets, as well as secure the maximum tax benefits that you are entitled to.
The list provided below is intended to give you a head start before you have the opportunity to discuss your situation with a tax professional. This material is not a replacement for a full discussion of your situation, only a list of the important tasks that you should attend to immediately, even before you talk to a professional adviser.
Actions You Should Take Now!
First, check on the health and safety of persons and pets, secure the impacted area and take measures to protect the physical security of any intact assets. Then do the following.
Document the Full Extent of the Damage
This can be done in several ways. Take pictures and/or videos of the site and details of the damage, as it appeared when you first saw it after the event if possible. Take additional pictures during any clean up and restoration to show the difference and the changes as well as the damage that becomes observable as you remove the debris. (Pictures that you can find of the assets prior to the damage will also be useful.)
Start and Maintain a Journal
Because commotion and chaos surrounds you at this time, it is important to maintain a log/journal/diary from the very beginning in which you record every detail of everything remotely related to the disaster and recovery process.
Create Written Documentation
Make detailed lists of the damaged and destroyed items as you sift through the debris. Make a list for each room or identifiable area. This will be valuable in correlating the pictures and the dollars as you develop your loss for any insurance, income tax and disaster relief (if applicable) purposes.
If any part of your loss is covered by insurance, in addition to contacting your insurance company and starting a claim, read your insurance policy. Often clauses that seemed clear when you read the policy after it was purchased will have new meanings and generate new questions in the wake of the realities of a major loss. Ask the claims representative for written explanations of clauses that you find confusing. Their explanations do not mean that you agree to or accept their interpretations.
Keep Records of All Your Financial Transactions
Because you have no clear idea of what is important at this early stage of recovery, your initial record keeping may have to be excessive. Because of tax benefits that may turn out to be available, you should keep records of all extra costs that you incur as a result of the disaster to keep your family safe and secure or get your business back to an operational state. These will fall into two categories: extra operating/living costs or, as often referred to in insurance contracts: “Extra Expense,” or “Additional Living Expenses.” The second category includes debris removal, cleanup costs and any expenses that you may incur for experts who assist you in the process of establishing your loss for tax and insurance purposes. Depending on the terms of any insurance, some or all of these costs may be reimbursed.
Document All New Purchases
Keep documentation of any and all personal property that you acquire after the event and any temporary and permanent repairs that you incur.
Verify Experts’ Credentials
You will probably find it necessary to use the assistance of numerous experts and advisers in the recovery process, and many of their titles may be new to you. Make sure that you determine the validity of their credentials and verify any references they provide or licenses they represent they have. Determine if a license is needed for them to perform their service. Determine the limits of the scope of services that their license allows them to perform or the manner in which they can charge for their services. Call the applicable licensing boards and call your state’s insurance regulatory agency to verify any insurance claim expert’s license. Do not make large advance payments to anyone. Payments should match performance.
Be Mindful of the Timeliness of Tax Consequences
Depending on the time of year that the event happened, there may be only a short time period in which to make critical tax decisions. While many of these require actions by certain restricted dates, it is often possible to request an extension of time to make an evaluation and file the necessary tax papers after the original due date. But the tax authorities must be notified in advance of the need for additional time. It may seem obvious to you that such additional time is needed to make the evaluation, but the Internal Revenue Service does not work that way. Do not assume that one specific extension has blanket authority for other needed extensions.
Time Identification will be very important for disasters that occur over a period of time and include the end of a tax year (such as flooding from Dec. 28 to Jan. 5). There are specific dates that must be determined for each taxpayer. When a loss occurs at the end of the year, one taxpayer may have a loss date at the end of the year, while a neighbor’s loss occurs the beginning of the following year. This distinction will become very important for completing tax returns. You must establish the tax year in which the damage to your property was caused by the disaster.
Avoid Becoming “Expert Poor”
While there are many experts that you will need, often the use of certain experts will be wasting time and money as their work product will have no relevance to your recovery. For example, the tax law states that an appraisal is necessary to establish the amount of a casualty loss. But, depending on any insurance recovery and other financial considerations, government assistance and grants as well as how much you have invested in the asset, you may not qualify for a casualty loss deduction. In fact, you may be facing a possible taxable gain as a result of the disaster. Otherwise the appraisal is a wasted process.
Get Fundamental Help First
Contact John Trapani, CPA, who has had experience in working with numerous clients who have had to deal with a disaster.
Tax and Financial Guidance For Disasters
* John Trampani, CPA provides free seminars for general counseling on ways you can help yourself to a speedy recovery. Call our office for times and locations of seminars. Assistance is provided on what experts you may need for your circumstances, how to go about finding qualified providers of the services that you will need and how to determine what experts should be sought first.
* Individual conferences are available to discuss, in detail, the facts and circumstances related to your unique disaster experience. These conferences involve a fee, payable at the time of the conference.
* Assistance in filing tax forms properly, minimizing the risk of an unnecessary audit by the IRS that will only add to your trauma, is an important service that is provided by John Trapani, CPA.
Charges for services provided on a fee basis are based on the time necessary to complete the task and never as a percentage of the value of any recovery that may result from the assistance provided or the money you recover.
Business Losses Following a Disaster
Changes in income tax laws in 1996 have increased the flexibility for business owners in the recovery process. The changes and flexibility are quite different from the past. Information on how these changes can increase your chances for a successful recovery are available from John Trapani, CPA. The income tax implications of business losses are quite different from those related to personal losses.