The Tax Cuts and Jobs Act of 2017 changed the rules for deducting personal casualty losses that incurred after December 31, 2017. Beginning in 2018, in order to claim a personal casualty loss, the loss must be due to a federally declared disaster. Under prior law, allowable losses included personal losses that were not compensated for by insurance or other type of reimbursement, regardless if they occurred in a federally declared disaster area.
In the event of a disaster, the IRS historically responds quickly to provide disaster assistance and emergency relief for individuals and businesses. Special provisions to the tax law are often implemented to help taxpayers recover financially. Additional time to file and pay taxes and the option to get a faster refund by claiming losses related to the disaster on the previous year’s return are often allowed by the IRS. Tax professionals can assist their clients as well by advising them on how to be prepared for a disaster. A few simple steps can help your clients protect their financial and tax records in the event of a disaster.
The IRS recommends the following:
- Paperless Recordkeeping for Financial and Tax Records – Save bank statements and other financial documents that are received via email. Also, scan important tax records such as W-2s and 1099s onto an electronic format and store them securely.
- Document Valuables and Business Equipment – Use the disaster loss workbooks in IRS Publication 584 for individuals and Publication 584-B for businesses to help compile a room-by-room inventory of belongings or business equipment.
- Check on Fiduciary Bonds – Employers who use payroll service providers should inquire about their fiduciary bond. The bond could protect the employer if the payroll provider defaults due to a disaster.
- Continuity of Operations Planning for Businesses – Businesses should develop a disaster plan to help their company get back to business quickly after a disaster. Emergency plans should be reviewed annually and updated as the business grows and changes. Employees should also be familiar with the business emergency plan.
TaxSlayer Pro recommends making regular backups of your tax program using the Program Backup Utility. Having a complete backup of the program and your returns can save you from the headache of lost data and will also allow you to assist your clients gather their tax documents if needed. Complete instructions for the TaxSlayer Pro Program Backup Utility can be found in our Knowledgebase by searching key words “Program Backup Utility”.
Make sure you and your clients are prepared. Check out the IRS Disaster Relief Resource Center for Tax Professionals. The site addresses common questions from tax professionals and contains links to FAQ pages for individuals and businesses. You can also access IRS publications related to casualties, disasters and thefts as well as additional disaster relief resources.