Top 10 Tips for Deducting Losses from a Disaster

IRS Special Edition Tax Tip
                                         
To mark National Hurricane Preparedness Week, the IRS wants you to know it stands ready to help. If you suffer damage to your home or personal property, you may be able to deduct the losses you incur on your federal income tax return. Here are 10 tips you should know about deducting casualty losses:

1. Casualty loss.  You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.
   
   
2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.
   
   
3. Covered by insurance.  If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.
   
   
4. When to deduct.  As a general rule, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year's return may result in a lower tax for that year, often producing a refund.
   
   
5. Amount of loss.  You figure the amount of your loss using the following steps:
   
   • Determine your adjusted basis in the property before the casualty. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way. For more see Publication 551, Basis of Assets.
     
     
   • Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property's FMV immediately before and immediately after the casualty.
     
     
   • Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.
   
   
6. $100 rule.  After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.
   
   
7. 10 percent rule.  You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.
   
   
8. Future income.  Do not consider the loss of future profits or income due to the casualty as you figure your loss.
   
   
9. Form 4684.  Complete Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule A, Itemized Deductions.
   
   
10. Business or income property.  Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.

You can call the IRS disaster hotline at 866-562-5227 FREE for special help with disaster-related tax issues. For more on this topic and the special rules for federally declared disaster area losses see Publication 547, Casualties, Disasters, and Thefts. You can get it and IRS tax forms on IRS.gov/forms at any time.
Additional IRS Resources:

• Disaster Assistance and Emergency Relief for Individuals and Businesses
• Tax Topic 515 - Casualty, Disaster and Theft Losses
• Frequently Asked Questions for Disaster Victims
• Tax Relief in Disaster Situations
• Publication 2194, Disaster Resource Guide for Individuals and Businesses
• Publication 584, Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property)
• Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook

IRS YouTube Videos:

• Preparing for Disasters – English | Spanish | ASL
• Help for Disaster Victims – English | Spanish | ASL

IRS Podcasts:
Help for Disaster Victims – English

Source: Internal Revenue Service

Get Transcript Application: Questions and Answers

The IRS today, released a FAQ on the, "Get Transcript" incident.
 
Q. How does the Get Transcript authentication process work for people setting up accounts?
 
A. The IRS uses a multi-step process to check identities. The first part involves submitting personal information about the taxpayer, including Social Security number, date of birth, tax filing status and street address. The second step involves using “out of wallet” questions, an industry standard used by financial institutions. These questions are based on information that only the taxpayer should know, such as the amount of their car payment or other personal information. There are multiple questions that must be answered correctly before the process can be completed.

Q. Were these accounts accessed using data obtained from the IRS?

A. Third parties obtained information from sources outside the IRS. This sensitive personal information was used to try accessing the Get Transcript application; third parties did not gain access to the core IRS system or tax accounts maintained within it.

Q. What is the IRS doing to protect taxpayers affected by this?

A. The IRS is taking several steps, including marking the accounts of affected taxpayers on our core tax account system to protect them against identity theft if someone else tries to file a tax return in their name, both right now and in 2016. The IRS is also sending letters to affected taxpayers with additional information, and offering credit monitoring to those whose transcript information was accessed.

Q. Are other IRS systems affected by security issues?

A. The IRS emphasizes this issue involves one online application involving transcripts — it does not impact other IRS systems, such as our core tax filing system, nor does it impact other applications, such as Where’s My Refund.

Q. What should people do to protect themselves?

A. Identity theft is just one of many reasons why people should think twice before posting publicly personal or financial information on social media or the Internet. People should also make sure their computers are up to date with the latest security software.

Q. Where can people get more information?

A. Taxpayers who are victims of identity theft can get additional information on IRS.gov, including instructions in our Taxpayer Guide to Identity Theft, as well as our Fact Sheet: Identity Theft Information for Taxpayers and Victims.

Q. What is transcript information used for?

A. This information is used for a variety of useful financial activities, including verification of income for such things as mortgages and student loans.

Q. What kind of information is available through Get Transcript?

A. The information varies depending on what is requested. The information requested can include account transactions, line-by-line tax return information and income reported to the IRS.

• Tax Return Transcript. A return transcript shows most line items from your tax return just as you filed it, and also includes forms and schedules you filed. However, it does not reflect changes made to the return after you filed it. In most cases, your return transcript will have all the information a lender or other agency needs to validate your income or tax reporting compliance.
  
  
• Tax Account Transcript. This transcript shows any adjustments made by you or the IRS after you filed your return. It shows basic data, like marital status, type of return, adjusted gross income and taxable income.
  
  
• Record of Account Transcript. This combines the information from both the tax account and tax return transcripts.
  
  
• Wage and Income Transcript. This shows data from information returns reported to the IRS, such as W-2s, 1099s and 1098s. Current tax year information may not be complete until July.
  
  
• Verification of Non-filing Letter. This is proof from the IRS that you didn’t file a return this year. Current year requests aren’t available until after June 15. This letter doesn’t address whether you, the taxpayer, are required to file a tax return for a given tax year. A taxpayer may fail to file a tax return even though he/she is required to do so.

Q. How many copies of Get Transcript are ordered each year?

A. About 23 million taxpayers used the online Get Transcript application this past filing season. The affected accounts are a small fraction of these — about 200,000 had access attempted. More than 100,000 of those succeeded in gaining access.

Q. I didn’t get a letter. Should I be concerned about the security of my tax information?

A. Protecting taxpayer data is a top priority for the IRS. This incident was isolated to one of our online applications; it did not involve our core system where taxpayer accounts are housed. We do not believe that general taxpayer information is jeopardized by this incident beyond those affected taxpayers’ transcript accounts.

Q. Should I call to find out if I’m receiving a letter?

A. The IRS advises not calling. Phone lines remain extremely busy due to staffing limitations, and phone assistors will not have access to additional information. Affected taxpayers will be receiving a letter directly advising them about the attempted or successful unauthorized access to their transcript and how to activate the protections we are offering them.

Q. How do I know the letter is actually from the IRS and not someone else?

A. Taxpayers can contact the IRS if they are unsure of the letter. The IRS emphasizes to taxpayers that in a notification letter like this, it will not request the taxpayer sensitive personal information such as Social Security numbers or credit card or financial information.

Source: Internal Revenue Service

“Get Transcript” Compromised

Today the IRS confirmed that Get Transcript – an application allowing taxpayers to review “line-by-line tax return information or wage and income reported to [the IRS]” – was illegally accessed between February and May of this year.

The press release reports more than 50% of the 200,000 unauthorized attempts were successful. All targeted account holders will be notified by mail, and the roughly 100,000 compromised accounts will receive free credit monitoring services.

To read the full article, click here.

Source: Internal Revenue Service

IRS Refunding $10 Million

Since the DC Court of Appeals upheld the district court ruling in Loving v. IRS – which determined that the IRS does not have the authority to require certification exams of tax preparers – the IRS will issue refunds to those who took the Registered Tax Return Preparer (RTRP) test. The IRS will mail a letter on May 28 followed by checks on June 2; they estimate $10,324,000 will be refunded.


The press release also notes that the Obama Administration’s 2016 budget grants the IRS authority to regulate tax preparation, which could lead to future certification tests being developed and implemented.

To read the full press release, click here.

Sources: Internal Revenue Service, District of Columbia Court of Appeals

Registered Tax Return Preparer Test Fee Refunds

The IRS is refunding the fees that return preparers paid for the Registered Tax Return Preparer test. Letters will be mailed to refund recipients on May 28 and checks will be mailed on June 2. Return preparers took the test between November 2011 and January 2013 and paid a fee of $116. About 89,000 tests were paid for and taken, with some preparers taking the test more than once.

The refunds are being made because the federal courts determined in Loving v. IRS that the IRS lacked authority to mandate testing.

The IRS remains committed to the principle that all persons who prepare federal tax returns for compensation should be required to pass a test of minimal competency and take annual continuing education training. Taxpayers deserve top-quality and ethical service from all tax professionals. As part of this commitment, the IRS launched an interim Annual Filing Season Program in 2014 to promote voluntary continuing education by non-credentialed tax return preparers.

The Administration's 2016 budget proposal would provide the IRS with authority to regulate all paid tax return preparers. Oversight of all paid preparers, coupled with diligent enforcement, would promote high-quality services from all tax professionals, improve voluntary compliance and foster confidence in the fairness of the U.S. tax system.

Frequently Asked Questions

Source: Internal Revenue Service 

Small Business Retirement Plan Penalty Relief Expires Soon

IRS Special Edition Tax Tip 2015-07, May 20, 2015

You still have time to file retirement plan tax returns for your small business. Under the IRS special penalty relief program, you can avoid stiff penalties for filing late. However, you must act soon. Here are some key points you should know about this program:

• Late Filing Penalties.  Plan administrators and sponsors who fail to file required forms can face penalties of up to $15,000 per return. The plan usually must file Form 5500-EZ each year.
  
  
• Penalty Relief Deadline.  A special program provides penalty relief for late filers. Those who are eligible can avoid these penalties by filing late returns by June 2, 2015.
  
  
• Relief to Certain Plans.  In general, this program is open to certain small business plans. These include owner-spouse plans, plans of business partnerships (together, “one-participant plans”) and certain foreign plans.
  
  
• Penalty Already Assessed.  If you have already been assessed a penalty for late filings you are not eligible for this program.
  
  
• One-Year Pilot.  The IRS launched this program on June 2, 2014, as a one-year pilot. It can help small businesses that may have been unaware of their plan’s filing requirements. So far, the IRS has received about 6,000 late returns under the program.
  
  
• Multiple Late Returns.  You may apply for relief for multiple late returns in a single submission under this program.
  
  
• No Fee Required.  The IRS does not charge a filing fee or require a payment to apply for this relief.
  

Additional IRS Resources:

• Revenue Procedure 2014-32
• Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan

IRS YouTube Video:

• Form 5500-EZ Pilot Penalty Relief Program – English

Source: Internal Revenue Service

2016 Tax Day Moves

The due date for tax filing season 2016 is Apirl 18, 2016. 

According to Revenue Ruling 2015-13, April 18 will be the filing deadline for most of the country in 2016. Since Emancipation Day – a legal holiday in D.C. – falls on a Saturday, it will be observed on the preceding Friday, which just so happens to be April 15. Tax Day is further delayed in Massachusetts and Maine, since they observe Patriot’s Day on April 18: meaning that most residents of those states have until April 19 to file income tax returns next year.


To read the entire ruling, click here.

Source: Internal Revenue Service