Let’s say your business has been hit with a devastating natural disaster. To make matters worse, many taxpayers find out after the fact that the losses aren’t fully covered by insurance. Fortunately, Uncle Sam may be able to offer some relief. Given the number of natural disasters in our area, from the Joplin tornado to flooding on the Missouri River, this edition will help you to learn why natural disasters, thefts and other casualties don’t have to wipe you – or your business – out.
A natural disaster or other casualty can be bad news for your business, but you might be able to salvage a tax break.
“Taxpayers can claim a casualty loss deduction on their tax returns if they’ve suffered a “sudden, unexpected or unusual” event – including a hurricane, earthquake, tornado, fire, flood, or storm”, says Dennis Nelson, Tax Partner. Auto collisions and thefts can also qualify. (However, no deduction is allowed for damage caused by gradual deterioration, such as destruction caused by termites or drought.)
If your region is officially designated as a “presidentially-declared disaster area,” you don’t even have to wait until you file your next tax return. You may be able to file an amended return and get a quick tax refund for fast financial relief.
There are some limitations on casualty loss deductions for personal assets (as opposed to business or investment assets):
1. You can’t deduct the first $100 of any casualty loss.
2. You can only write off casualty losses when the total amount for the year exceeds 10 percent of your adjusted gross income.
But there are no such limitations for businesses or income-producing property such as rental real estate.
You’ll need proof, though: Keep copies of newspaper clippings and police reports. Take “after” photos or videos of the disaster (“before” photos help too). You may also need an independent appraisal from a real estate expert.