Expanded Tax Relief to Victims of Hurricane Matthew

Hurricane Matthew victims in much of North Carolina and parts of South Carolina, Georgia and Florida have until March 15, 2017, to file certain individual and business tax returns and make certain tax payments,

The IRS is now offering this expanded relief to any area designated by the Federal Emergency Management Agency FEMA, as qualifying for either individual assistance or public assistance. Moreover, taxpayers in counties added later to the disaster area will automatically receive the same filing and payment relief.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Oct. 4, 2016. As a result, affected individuals and businesses will have until March 15, 2017, to file returns and pay any taxes that were originally due during this period. This includes the Jan. 17 deadline for making quarterly estimated tax payments. For individual tax filers, it also includes 2015 income tax returns that received a tax-filing extension until Oct. 17, 2016. The IRS noted, however, that because tax payments related to these 2015 returns were originally due on April 18, 2016, those are not eligible for this relief.

A variety of business tax deadlines are also affected including the Oct. 31 and Jan. 31 deadlines for quarterly payroll and excise tax returns. It also includes the special March 1 deadline that applies to farmers and fishermen who choose to forgo making quarterly estimated tax payments.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after Oct. 4 and before Oct. 19 if the deposits are made by Oct. 19, 2016.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2016 return normally filed next year), or the return for the prior year (2015).

Casualty losses, theft losses, and losses on deposits.

If you have a casualty or theft, you have to file Form 4684. You will also have to file one or more of the following forms

Schedule A (Form 1040), Itemized Deductions.

Schedule D (Form 1040), Capital Gains and Losses.

1- Casualty

A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.

  • A sudden event is one that is swift, not gradual or progressive.
  • An unexpected event is one that is ordinarily unanticipated and unintended.
  • An unusual event is one that isn’t a day-to-day occurrence and that isn’t typical of the activity in which you were engaged.

Deductible losses.   Deductible casualty losses can result from a number of different causes, including the following.

  • Car accidents.
  • Earthquakes.
  • Fires.
  • Floods.
  • Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster.
  • Mine cave-ins.
  • Shipwrecks.
  • Sonic booms.
  • Storms, including hurricanes and tornadoes.
  • Terrorist attacks.
  • Vandalism.
  • Volcanic eruptions.

Nondeductible losses.   A casualty loss isn’t deductible if the damage or destruction is caused by the following.

  • Accidentally breaking articles such as glassware or china under normal conditions.
  • A family pet.
  • A fire if you willfully set it or pay someone else to set it.
  • A car accident if your willful negligence or willful act caused it. The same is true if the willful act or willful negligence of someone acting for you caused the accident.
  • Progressive deterioration.

2- Theft

A theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking of property must be illegal under the laws of the state where it occurred and it must have been done with criminal intent.

Theft includes the taking of money or property by the following means.

  • Blackmail.
  • Burglary.
  • Embezzlement.
  • Extortion.
  • Kidnapping for ransom.
  • Larceny.
  • Robbery.

The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law.

Decline in market value of stock.   You can’t deduct as a theft loss the decline in market value of stock acquired on the open market for investment if the decline is caused by disclosure of accounting fraud or other illegal misconduct by the officers or directors of the corporation that issued the stock. However, you can deduct as a capital loss the loss you sustain when you sell or exchange the stock or the stock becomes completely worthless. You report a capital loss on Schedule D (Form 1040).

Mislaid or lost property.   The simple disappearance of money or property isn’t a theft. However, an accidental loss or disappearance of property can qualify as a casualty if it results from an identifiable event that is sudden, unexpected, or unusual. Sudden, unexpected, and unusual events are defined earlier.

3- Loss on Deposits

A loss on deposits can occur when a bank, credit union, or other financial institution becomes insolvent or bankrupt. If you incurred this type of loss, you can choose one of the following ways to deduct the loss.

  • As a casualty loss.
  • As an ordinary loss.
  • As a nonbusiness bad debt.

Casualty loss or ordinary loss.   You can choose to deduct a loss on deposits as a casualty loss or as an ordinary loss for any year in which you can reasonably estimate how much of your deposits you have lost in an insolvent or bankrupt financial institution. The choice is generally made on the return you file for that year and applies to all your losses on deposits for the year in that particular financial institution. If you treat the loss as a casualty or ordinary loss, you can’t treat the same amount of the loss as a nonbusiness bad debt when it actually becomes worthless. However, you can take a nonbusiness bad debt deduction for any amount of loss that is more than the estimated amount you deducted as a casualty or ordinary loss. Once you make this choice, you can’t change it without permission from the IRS.

If you claim an ordinary loss, report it as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23. The maximum amount you can claim is $20,000 ($10,000 if you are married filing separately) reduced by any expected state insurance proceeds. Your loss is subject to the 2%-of-adjusted-gross-income limit. You can’t choose to claim an ordinary loss if any part of the deposit is federally insured.

Nonbusiness bad debt.   If you don’t choose to deduct the loss as a casualty loss or as an ordinary loss, you must wait until the year the actual loss is determined and deduct the loss as a nonbusiness bad debt in that year.

How to report.   The kind of deduction you choose for your loss on deposits determines how you report your loss.

  • Casualty loss — report it on Form 4684 first and then on Schedule A (Form 1040);
  • Ordinary loss — report it on Schedule A (Form 1040) as a miscellaneous itemized deduction; or
  • Nonbusiness bad debt — report it on Form 8949 first and then on Schedule D (Form 1040).

Proof of Loss

To deduct a casualty or theft loss, you must be able to prove that you had a casualty or theft. You also must be able to support the amount you take as a deduction.

Casualty loss proof.   For a casualty loss, your records should show all the following.

  • The type of casualty (car accident, fire, storm, etc.) and when it occurred.
  • That the loss was a direct result of the casualty.
  • That you were the owner of the property or, if you leased the property from someone else, that you were contractually liable to the owner for the damage.
  • Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery.

Theft loss proof.   For a theft loss, your records should show all the following.

  • When you discovered that your property was missing.
  • That your property was stolen.
  • That you were the owner of the property.
  • Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery.