On the heels of Hurricane Florence, businesses should be aware of tax breaks to help them through weather disasters resulting from nature or humans. Tax relief can help ameliorate the financial cost from the damage or destruction to your business property.
Business Tax Breaks for Disasters
Filing Extensions
When disaster strikes, the IRS may give businesses more time to meet certain tax responsibilities. For example, following Hurricane Florence the IRS announced relief for victims of that disaster:
- Businesses with extensions (e.g., calendar-year partnerships and S corporations whose 2017 extensions run out on September 17, 2018) have until January 31, 2019, to file.
- Individuals and calendar-year C corporations with a filing extension for their 2017 returns on October 15, 2018, have until January 31, 2019, to file.
- Individuals and businesses can pay estimated taxes for 2018 that were due on September 17, 2018, and the final installment that will be due for C corporation on December 17, 2018, and for individuals on January 15, 2019, by January 31, 2019.
- Quarterly payroll and excise tax returns normally due on October 31, 2018, can be timely filed by January 31, 2019.
In addition, penalties on payroll and excise tax deposits due on or after September 7, 2018, and before September 24, 2018, could be abated as long as the deposits were made by September 24, 2018.
Disaster Loans
Businesses may be able to obtain low-interest disaster assistance loans through the SBA. A Business Physical Disaster Loan can be used to repair or replace the following items damaged or destroyed in a declared disaster: real estate, personal property, machinery and equipment, and inventory, and business assets. An Economic Injury Disaster Loan can provide relief even if you don’t have any physical injury.
Treatment of Insurance Premiums
As the Boy Scouts say: Be prepared and carry sufficient insurance for protection. Your premiums are fully deductible. Insurance to consider:
- Property insurance. This is part of a Business Owner’s Policy.
- Flood insurance. This is a separate policy; learn more from FEMA.
- Business continuation coverage. This policy pays the bills (e.g., rent, wages) when a disaster shuts you down.
Treatment of Insurance Proceeds
When you receive payment from your insurance company, the proceeds are tax free. However, if they exceed the tax basis of your property, you have gain from an involuntary conversion. Tax on the gain can be postponed by reinvesting the proceeds in similar property within set time limits. Involuntary conversions are explained in IRS Publication 544.
Business Casualty Losses
If your insurance does not cover your losses, you can take a tax deduction for them. Unlike personal disaster losses which are subject to certain thresholds, there are no thresholds for business-related disaster losses. But if losses are greater than your income, some limitations may come into play. For example, there may be a net operating loss, which can be carried forward but only to offset 80% of income in future years.
Final Thought
You never think disaster will happen to you, but it can. Take steps to protect your business. And watch for IRS relief if disaster strikes. The IRS has a special Disaster Assistance Hotline to help disaster victims (866-562-5227). Put this number in your contact list just in case.
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