In the wake of a disaster, much work needs to be done to deal with the fallout. Property might be damaged, important documents might have gone missing, and normal day-to-day operations have come to a halt. Disasters are often unexpected and can happen in an instant, making it hard to find your footing. As a business owner, relief is often a welcomed sight during these chaotic times when your whole world has been turned upside down.
You might not be thinking about taxes immediately after disaster strikes, but tax relief is there to help cushion the blow for your business. In this blog, we'll dive into how you can secure disaster relief from the IRS.
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Before the IRS can provide tax relief to businesses affected by a disaster, a formal declaration must be made. Formal declarations activate various forms of assistance, such as federal or state aid, emergency resources, and legal provisions designed to support recovery efforts. This process starts when the Governor of the impacted state or Tribal Chief Executive requests a preliminary damage assessment from the Federal Emergency Management Agency (FEMA). Based on that assessment, the President may issue a disaster or emergency declaration, which officially authorizes the federal disaster relief efforts, including IRS tax relief. However, in cases where the federal government has primary responsibility, the President can declare an emergency without a prior request from the Governor or Tribal Chief Executive.
The following natural and man-made events can qualify as a major disaster:
Once a disaster is declared, two types of declarations can be issued under the Robert T. Stafford Act:
|
Type of Declaration |
Purpose |
|
Emergency Declaration |
Provides federal assistance to help state, local, or tribal governments protect lives, property, and public health or avert the threat of a catastrophe. |
|
Major Disaster Declaration |
Offers individual assistance to people and households, as well as public assistance to state, tribal, and local governments and certain nonprofits for repair or emergency work. |
For businesses affected by a disaster, IRS tax relief may be available if their primary place of business is located within a federally declared disaster area. Specifically, the following business entities may qualify for relief:
Additionally, any business entity, or sole proprietorship not located in a covered disaster area, but whose records are located in the covered disaster area may also qualify for relief.
To determine if your business is located in an eligible disaster area, you can check the latest declarations on FEMA’s Disaster Declarations page.
If your business tax records were lost due to a disaster, you can request a tax return transcript or a copy of your past tax returns from the IRS to help you rebuild. Here are the steps your business can take:
1. Request a Tax Return Transcript: You can get a free transcript of your business's past tax returns online using the Get Transcript tool on the IRS website, or by filing Form 4506-T, Request for Transcript of Tax Return.2. Request a Copy of Your Tax Return: If you need a full copy of your tax return, you can file Form 4506, Request for Copy of Tax Return. The IRS typically charges a fee for this service, but in disaster situations, fees are waived and requests are expedited to help businesses recover.
3. Expedite the Process: When filing Forms 4506-T or 4506, be sure to write "disaster related" on the form, along with the type of disaster and the state where it occurred, to speed up processing.
4. Notify the IRS of a Change of Address: If your business relocates due to the disaster, file Form 8822-B, Change of Address or Responsible Party – Business, to update your business address with the IRS.
If your business has suffered losses due to a disaster, the IRS provides specific tax relief options that you can take advantage of. These are outlined in IRS Publication 547, which details how to report and claim losses on your tax return, as well as the special provisions for businesses impacted by federally declared disasters.
A casualty loss occurs when your business property is damaged, destroyed, or lost due to a sudden, unexpected event like a natural disaster or theft. When this happens, you can claim a deduction for the loss on your tax return. The amount of the deduction is based on the decrease in the property’s value after the event, minus any insurance or other reimbursements you receive.
If your business is located in an area covered by a federally declared disaster, you may qualify for additional IRS tax relief:
Additionally, the IRS releases state-specific tax relief guidance for businesses and individuals based on current disaster declarations. This guidance outlines the specific forms of relief available for your state, including any extended deadlines or special provisions. You can check for the latest updates on the IRS website to see if your area qualifies for additional relief measures.
In 2024, the following states have had disaster declarations.
Hurricane Helene (Extended Deadlines to May 1, 2025)
The method for reporting your losses depends on the structure of your business:
Keep in mind that any insurance reimbursements or payments you receive must be deducted from your total loss amount. You can only claim the net loss on your tax return.
Being prepared for a disaster is critical to protecting your business’s financial and tax records. The IRS encourages businesses to take proactive steps to safeguard important documents in the event of an unexpected disaster. Here are some strategies to help you be better prepared from a tax perspective:
Opt for paperless recordkeeping by receiving important documents like bank statements, W-2s, and tax returns electronically. Scanning and saving physical documents in a secure digital format ensures they’re safe and easily retrievable after a disaster.
Create an inventory of your business assets. Documenting business equipment helps with insurance claims and casualty loss deductions in the event of disaster damage.
If your business uses a payroll service provider, verify whether they have a fiduciary bond in place. This bond can protect your business if the provider defaults, which could affect your payroll tax obligations in a disaster scenario.
Having a solid continuity of operations plan is vital for getting your business back up and running quickly after a disaster. Regularly review and update your emergency plan, and make sure it addresses tax-related functions, such as keeping records secure and filing taxes on time.
Recovering from a disaster can be tough, but the IRS disaster relief options available can help ease the financial strain. From casualty loss deductions to extended deadlines and federal assistance, the tax relief from the IRS can make a big difference for your business. It's important to know how to qualify, keep proper records, and stay updated on declared disasters to take advantage of these benefits.
Dealing with taxes after a disaster can be overwhelming, but you don’t have to do it alone. The tax professionals at The MB Group are here to help you navigate disaster relief from the IRS and make sure you get the support you need to get back on your feet. Reach out to us today for guidance and assistance.
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