As we work to recover from Hurricane Irma, the IRS and Congress have provided some help in the form of extensions for filing returns and paying taxes as well as significant tax relief measures that recently became law.
Among other things, these provisions include:
- New employment-related tax credits,
- Increased and more widely available tax deductions for personal casualty losses,
- Favorable changes to the rules regarding early withdrawals from retirement plans,
- An increase in the amount of loans that may be taken from a retirement plan, and
- Increased deduction limits to the extent that charitable contributions are made for hurricane relief.
The entire states of Florida and Georgia are included in the relief. Here are details about the new provisions.
First, affected taxpayers have until January 31, 2018, to file most tax returns (including individual, corporate, and estate and trust income tax returns). This includes all individual income tax returns whose extended due date was previously October 16, 2017, as well as the September 15, 2017, and January 16, 2018, deadlines for making quarterly estimated tax payments.
While this waives any late filing penalties for extended individual returns, since the tax related to these returns were originally payable on April 18, 2017, there is no extension of the time for payment.
These extensions are automatic for those of us in Florida and Georgia, and there is no need for you to contact the IRS to get this relief. However, if you receive a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment, or deposit due date falling within the postponement period, you can call the number on the notice to have the penalty abated.
Increased Casualty Loss Deduction
An increased casualty loss deduction is also available if you suffered a non-business loss from hurricane Irma. These are losses that are not connected with a trade, business, or a transaction entered into for profit that are attributable to Hurricane Irma and occurred on or after September 4, 2017.
Unfortunately, the cost of protecting property against a casualty (e.g., boarding up a house ahead of the storm) is not part of a casualty loss. Nor is the cost of cleaning up after the storm or the cost of repairing damaged property. However, if your property is business property, these expenses are deductible as business expenses.
Normally, only taxpayers who itemize their deductions (as opposed to simply claiming the standard deduction) can claim a casualty loss. The special rules waive this requirement for casualty losses related to Irma by allowing you to add the amount of such a loss to your standard deduction.
Also, normally a casualty loss can only be deducted in the year in which the loss occurs. However, for losses relating to Irma, you have the option of claiming the loss in 2016 by filing an amended return. This is especially worth considering if you were in a higher tax bracket in 2016 than 2017.
Early Withdrawals from Retirement Plans
Finally, both Congress and the IRS have eased the tax burden of using qualified retirement plans to help individuals recovering from Hurricane Irma. Some of the tax relief provisions available include:
- The 10% early withdrawal penalty will not apply to any qualified hurricane distribution you receive from your qualified retirement plan.
However, the aggregate amount of distributions you receive from your qualified retirement plan which may be treated as qualified hurricane distributions for any tax year cannot exceed the excess (if any) of $100,000 over the aggregate amounts treated as qualified hurricane distributions you received for all prior tax years.
- The limit on loans you may receive from your plan that are not treated as taxable distributions is increased from $50,000 to $100,000. Also, repayment may be deferred for an additional year.
- Any qualified hurricane distribution amounts required to be included in gross income for 2017 can be spread out over 2017, 2018, and 2019.
Please don’t hesitate to call if you have any questions on any of these tax relief measures.