Many South Floridians outside of the Keys were spared Irma’s direct wrath. Still, we find ourselves managing the fallout: days or weeks without power, sky-high piles of debris and business interruptions. Now it’s time to add income taxes to that list.
Thankfully, the IRS offered expanded relief to victims of Hurricane Irma when it announced extensions of filing deadlines for taxpayers in all 67 Florida counties. Taxpayers who had valid extensions to file their 2016 returns until September or October 2017 are now granted until January 31, 2018, to submit their filings. In addition, third- and fourth-quarter individual estimated tax payments previously due on September 15, 2017, and January 16, 2018, are granted the same extended due date of January 31, 2018.
What about expenses incurred because of the storm? Expenditures incurred by a business to prepare for the storm or get back up and running are generally deductible. This includes the last-minute run for plywood, additional labor to help clear your premises, wages paid while the doors were shuttered, spoiled inventory cleared from the shelves, and that extra advertising blitz to tell customers you’re back open for business. Many business owners optimistically ask if lost revenue can be taken as a tax write-off. The answer there is generally “no.”
What about damage to my property? The IRS offers casualty loss deductions, which may provide relief for business or personal property losses. A casualty loss is the damage, destruction or loss of your property from any sudden, unexpected, or unusual event, such as a hurricane, tornado, or flood. It will not include normal wear and tear, and you can’t deduct any amounts reimbursed by your insurance carrier. Taxpayers can generally deduct the loss in the year it occurred, which would not provide relief until 2017 tax returns are filed. Since Floridians are all in a federally declared disaster area, we can also choose to amend the immediately preceding tax year to provide a quicker remedy.
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For personal-use property, your qualifying loss will be limited to the lesser of the adjusted-basis of the property before the storm or the decrease in fair market value incurred during the storm, all offset by insurance reimbursements. The loss is then reduced by $100 plus 10 percent of your adjusted gross income, and reported as an itemized deduction. These limitations can substantially lessen your tax savings. Business-casualty losses can face different rules. Now is the time to consult with your accountant to see how you’ll qualify for these deductions.
What about preparing for the next “Big One” to come our way? Many business-related capital expenditures, such as that new generator you’re eyeing, will qualify for a Section 179 deduction. This allows taxpayers to write-off up to $500,000 of qualifying purchases subject to certain limits.
What else should I consider? With many of our neighbors in need after Irma, not to mention Harvey and Maria, you may have expanded charitable donations. Any direct gifts to a 501(c)(3) non-profit organization can qualify for a charitable deduction.
All of these income tax considerations highlight the importance of keeping accurate and timely books and records. This information can not only help you make smarter business decisions and eliminate the pain of annual tax filings, but it can also help you capture additional deductions, calculate a casualty loss, or substantiate a business interruption insurance claim. You bear the burden of proof! Thankfully, cloud-based technologies allow for substantially streamlined, cost-effective, and automated accounting and record-keeping systems.
Now is the time to implement any necessary changes before South Florida finds itself in the cross-hairs again!