The Tax Aspects of Disasters like Hurricane Harvey

07/09/17 2:35 pm | Comments (0) | Posted By:

Between Hurricane Harvey, the fast-approaching Hurricane Irma and the various wildfires ravaging the west, unfortunately natural disasters have been all too common this summer.

The last thing on anyone’s mind living in those areas is taxes, but nonetheless, there are various tax aspects of a disaster that people should be aware of. Fortunately, this is one area that the IRS makes rapid decisions to help those in need. Below is a sampling of the latest relief for victims of Hurricane Harvey from the IRS. Those impacted by disasters should check the IRS’s page frequently as other disasters may get similar relief from the IRS in the near future.

  •  The IRS has provided special relief to encourage leave-based donation programs. Under these programs, employees may forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before Jan. 1, 2019, to charitable organizations providing relief for the victims of this disaster. The donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the cash payments as business expenses.
  •  401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Harvey and members of their families who live or work in disaster area localities affected by Hurricane Harvey and designated for individual assistance by the Federal Emergency Management Agency (FEMA). For a complete list of eligible counties, visit The FEMA Disaster website page. To qualify for this relief, hardship withdrawals must be made by Jan. 31, 2018. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.
  •  Hurricane Harvey victims in parts of Texas and any area designated by FEMA as qualifying for individual assistance (currently 18 counties are eligible) have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments. This includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, and businesses with extensions that run out on Sept. 15. This also includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments. 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.

Finally, for those who want to help and support those victims of any natural disaster, be cautious of who you make donations to. In order for donations to be tax deductible, they must be made to recognized charitable organizations under the IRS. For instance, Go Fund Me donations are typically not deductible as they go to a person and not a charitable organization. If you are donating online, make sure you are on the legitimate website for the charity. Unfortunately, it is all too common for charity scams to pop up during disasters with fake websites that are very similar to legitimate ones. You should ensure that the organization clearly has their Employee Identification Number (EIN) posted and you can use that and their name to check their exempt status on the IRS website. If you are donating a significant sum, that little bit of homework on your part is well worth it.

 

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