The recent natural disasters across the United States have left many people facing significant financial hardship, but the IRS is there to help. The tax authority recognizes that filing taxes can be a daunting task, especially when dealing with the aftermath of a disaster. As such, it offers an automatic extension beyond the normal filing deadline, allowing taxpayers to file their returns at their own pace. The IRS extension is not only a temporary reprieve but also a tax relief measure that can significantly reduce the tax burden for disaster victims. The tax authority allows taxpayers to write off a certain amount of loss due to disaster, which can include damaged property, lost income, or small business losses. “It can feel really daunting and overwhelming, after you’ve already lost your home or your vehicle, to tackle that project (of loss write-off). It can take time and a lot of energy,” said Alison Flores, manager at the Tax Institute for H&R Block. “We see people be hesitant to tackle that, and so they leave that loss on the table.”
In the wake of a disaster, people are also more vulnerable to scams, so it’s essential to be extra vigilant when preparing taxes. Scammers often pose as representatives of the IRS or FEMA to exploit victims of disasters, and they may promise fake tax refunds, solicit donations for fake charities, or request personal or financial information. “Scammers often pose as representatives of the IRS or FEMA to exploit victims of disasters,” said Misty Erickson, tax content program manager at the National Association of Tax Professionals. “Common scams include false promises of tax refunds, fake charities soliciting donations, and phishing attempts requesting personal or financial information.”
Here are some key points to keep in mind:
- Determine whether your area is a federally declared disaster site
- Check the IRS list of disaster locations
- Taxpayers in these areas have until May 1 to file returns and make payments
- No additional paperwork is needed to receive the extra two-week grace period
- Individuals and businesses in southern California affected by wildfires and straight-line winds also qualify for automatic extensions due to disaster
- Taxpayers have until October 15 to file returns and make payments
- Most direct disaster relief is not counted as income and is not taxed
The IRS provides a list of disaster locations on its website. For the past year, individuals and businesses affected by Hurricanes Helene and Milton qualify for tax relief, as well as disaster victims in parts of Alabama, Florida, Georgia, North Carolina, South Carolina, New Mexico, Tennessee, Virginia, West Virginia, and Alaska. Taxpayers in these areas have until May 1 to file returns and make payments, and there’s no need to do any additional paperwork to receive that extra two-week grace period. Filers also have the option to request additional extensions to October 15, but interest will accrue if any money due isn’t paid by May 1. Individuals and businesses in southern California affected by wildfires and straight-line winds also qualify for automatic extensions due to disaster. Taxpayers in the relevant counties have until October 15 to file returns and make payments. The IRS notes that interest or fees that normally accrue on late payments won’t accrue during disaster extensions. Most direct disaster relief is also not counted as income, and so is not taxed. To make the most of these tax benefits, taxpayers can take several steps in the immediate aftermath of a disaster:
- Save media coverage
- Take photographs of damaged property or belongings to document and calculate the amount of your loss
- Keep receipts for associated expenses, including contracted work on property damaged by disaster
- Keep records of the original value of any property
According to the IRS, filing your insurance claims as soon as possible is also important, as you deduct any insurance reimbursement from disaster losses claimed on your tax return. Next, determine whether you qualify for tax deductions. When looking at a loss, it’s often damage to your home, furnishings inside your home, vehicles, that kind of thing. Most of the time, people will have home insurance and auto insurance, and file claims. That’s the first step. The tax deduction is for loss that’s not paid for or reimbursed by your insurance. The IRS calls this kind of disaster relief “casualty loss.” Claiming casualty loss doesn’t result in dollar-for-dollar reimbursement, but it does lower your tax burden, which can mean more cash to help pay for recovery. Form 4684, which you include when you file your return, walks you through the relevant steps for calculating your casualty write-off. Victims of disasters may deduct their losses in either the year they suffered the loss or in the previous year — in that case, by filing an amended return. When it comes to scams, it’s essential to be cautious and vigilant. Scammers often target disaster victims for exactly this reason, posing as representatives of the IRS or FEMA to exploit victims of disasters. “Taxpayers should be cautious of unsolicited phone calls, emails or texts claiming to be from the IRS or relief agencies,” said Erickson. “The IRS never initiates contact via email, text, or social media to request sensitive information. When in doubt, taxpayers should verify correspondence by calling official numbers directly.”
According to the IRS, taxpayers should watch out for:
- Big paydays: The promise of more money than you think sounds reasonable
- Threats and demands: Any pressure to pay for tax help “now or else,” mentions of arrest or deportation, or refusals to let you question or appeal the taxes they say you owe
- Suspicious or misspelled website links that aren’t IRS.gov
Scammers may say that they want to “help” you file casualty loss claims or to get big refunds. Always rely on official IRS government websites and beware fishy offers of help with high price-tags or sensational promises. By taking these steps and being aware of the tax relief options available to you, you can make the most of the IRS’s assistance and get back on track after a disaster.