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Archives for August 2016

Can I claim a loss due to the flooding?

Casualty Losses 

Personal Property

Those affected by the recent floods may qualify for casualty loss deductions.  These losses are reported on Form 4684, Casualties and Thefts.  The loss is limited to the lesser of cost or decrease in FMV of property, less insurance proceeds or other reimbursements.

There are various methods to determine the amount of the loss or decrease in fair market value.   The first method is an appraisal of the property (before and after the loss).  Secondly, one could use the cost of cleaning up or making repairs to property.  The following conditions must be met in order to use the “cost of cleaning up or making repairs”:

  • Repairs are actually made
  • Repairs are necessary to bring the property back to its condition before the casualty
  • Amount spent for repairs isn’t excessive
  • Repairs take care of the damage only
  • The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty.

The deductibility of losses on personal-use property is limited to the following amount for each loss event:

Loss – $100 – (10% X Adjusted Gross Income)

For example:

Your loss after insurance reimbursement is $10,000.  Your AGI for the year of the loss is $85,000.  Your first apply the $100 rule and then the 10 % rule.

  • Loss after insurance                      $10,000
  • Subtract $100 per incident             (  100)
  • Loss after $100 rule                       9,900
  • Subtract 10% * $85,000 AGI           ( 8,500)
  • Casualty Loss Deduction         $ 1,400

 If 10% of your AGI exceeds your loss after insurance reimbursement, you do not have a deductible casualty loss.

Business or Income Producing Property – Casualty Loss

Property completely destroyed

For business or income-producing property, including rental property, that is completely destroyed, the decrease in fair market value is not considered.  Your loss is figured as follows:

Your adjusted basis in the property

Less any Salvage Value

Less any insurance or other reimbursement you receive or expect to receive

Loss of Inventory

If you have a loss of items held for sale to customers, you can deduct the loss through an increase in cost of goods sold, including any insurance reimbursements related to the lost inventory in gross income.

Business property – not completely destroyed

If your business property was damaged but not completely destroyed, your casualty loss would be the smaller of the decrease in Fair Market Value (FMV) of the property or the adjusted basis in the property before the casualty less any insurance reimbursement.  For example:  a truck used for business sustained damage from flooding; the insurance company reimbursed $3,000 (the cost to repair the truck (the assumed decrease in FMV), less the deductible of $1,000);the basis of the vehicle was $10,000.

  • Adjusted basis in the truck before the flooding             $10,000
  • Decrease in FMV                                                                      $ 4,000
  • Amount of loss (lesser of line 1 or 2)                                   $ 4,000
  • Less insurance reimbursement                                            ( 3,000)
  • Business Casualty Loss Deduction                                      $ 1,000

If a single casualty involves more than one item of property, you must figure the loss on each item separately.  Then combine the losses to determine the total loss from that casualty.

Gains from Casualties

Please be aware that gains can result if insurance proceeds exceed the adjusted basis of the property before the casualty.

When can I claim this loss? 

The President has declared that a major disaster exists in the State of Louisiana due to the recent flooding events. This declaration allows you to claim casualty losses on either your 2015 tax return or on your 2016 tax returns.  If you filed your 2015 return already, you can file an amended return to claim the losses.  See the link below for more information.

 https://www.irs.gov/taxtopics/tc515.html

Please do not hesitate to contact us if you need assistance with tax matters related to the recent flooding.

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Tax Relief to Louisiana Storm Victims

Louisiana storm victims will have until January 17, 2017

to file certain Federal individual and business tax returns and make certain Federal tax payments, the Internal Revenue Service announced Monday.  All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.  Taxpayers in East Baton Rouge, Livingston, St. Helena, Tangipahoa, Acadia, Ascension, East Feliciana, Iberia, Lafayette, Pointe Coupee, St. Landry, Vermillion, Avoyelles, Evangeline, Iberville, Jefferson Davis, St. Martin, St. Tammany, Washington, and West Feliciana parishes will receive this and other special tax relief.

The Federal tax relief

postpones various tax filing and payment deadlines that occurred starting on August 11, 2016.  As a result, affected individuals and businesses will have until January 17, 2017 to file Federal returns and pay any Federal taxes that were originally due during this period.  This includes the September 15, 2016 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 October 17, 2016. The IRS noted, however, that because tax payments related to these 2015 returns (see more on this below) were originally due on April 18, 2016, they are not eligible for this relief.  A variety of business tax deadlines are also affected including the September 15, 2016 deadline for corporation and partnership returns on extension and the October 31, 2016 deadline for quarterly payroll and excise tax returns.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after August 11, 2016 and before August 26, 2016 if the deposits are made by August 26, 2016.  Details on available relief can be found on the disaster relief page on IRS.gov.

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. However, if an affected taxpayer receives 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, the taxpayer should call the number on the notice to have the penalty abated.

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.

What does this mean for you?

  • Any 2015 individual or business tax return (including trusts) with an extended due date ON OR AFTER August 11, 2016 will now be extended until January 17, 2017 (Federal tax returns)
    • This includes 2015 individual income tax returns originally due April 18, 2016 but on extension until October 17, 2016. 
    • This includes S Corporations and C Corporations originally due March 15, 2016 but on extension until September 15, 2016 as well as partnerships and trusts originally due April 18, 2016 but on extension until September 15, 2016.
    • This includes 2016 3rd quarter estimated (quarterly) tax payments due September 15, 2016.
    • This includes 2016 3rd quarter payroll tax returns due October 31, 2016
  • CAUTION:  This relief does not apply to Federal taxes owed prior to August 11, 2016.
    • What do we mean by this?
      • Consider your 2015 Federal individual income tax return originally due April 18, 2016.  If you filed for an extension but did not pay ALL of the tax due, any penalty/interest accruing from April 18, 2016 will continue to accrue.  The individual extension extends the time to file the return (originally until October 15, 2016, now until January 17, 2017 based on the info above) but does NOT extend the time to pay your tax.

In addition to the Federal relief detailed above, the Louisiana Department of Revenue has also granted relief.  Individual and corporate tax returns as well as estimated payments due on or after August 11, 2016 (including returns on extension) will have an extended deadline of January 17, 2017.  This new due date mirrors the Federal extended due date.

Please do not hesitate to contact us if you have any questions.  We are here to help! CONTACT US TODAY!

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