Often in estate planning we focus solely on what happens to our estate when I die. Then if we get real prepared we expand the focus to what happens to our estate when I become disabled or incapacitated. Only occasionally do we get to planning for disasters to our estate and not necessarily to us. Following is an article that can serve as a starting point for this third step of planning.
(ARA) – Disaster preparedness has become more common as a result of the increasing number of floods, tornadoes, wildfires and hurricanes in recent years. According to FEMA’s website, there were 99 major disasters declared in 2011 alone.
One area of disaster planning too often minimized or overlooked is financial data. “Saving and protecting your financial information can take some time,” says Jessi Dolmage, spokesperson for TaxACT. “But that information can impact how quickly and extensively you recover from a natural disaster.”
Dolmage recommends starting with a room-by-room inventory of personal and business belongings. Document, photograph or video record belongings – especially those of higher value – for proof of value for insurance, tax and casualty loss purposes. Visit www.irs.gov for Internal Revenue Service (IRS) workbooks and Publication 584 for inventory resources.
Next, save electronic copies of inventory and other documents on an external drive, CD or secure website. Documents should include home closing statements, homeowner and other insurance records, tax returns and W-2s. Consider keeping copies in multiple locations.
The IRS often grants extended tax return filing and payment deadlines, as well as lesser or waived penalties, to individuals and businesses in federally declared disaster areas. You don’t typically need to contact the IRS for tax relief, as the agency automatically identifies the areas. However, you should call the IRS disaster hotline if you have property in the designated area but reside or have a business outside the designated area. If you move outside the declared area, be sure to notify the IRS of your new address.
Casualty losses related to your home or business, household items and vehicles not covered by insurance or other reimbursements may be deductible on your federal tax return. Depending on when the federally declared disaster happens, you may have the option of claiming related losses on the previous or current year’s return.
Casualty losses for federally declared disasters can be claimed as a miscellaneous deduction. If you claimed the standard deduction last year and your casualty loss plus other itemized deductions total more than the standard deduction, you may benefit more by amending last year’s return.
Amending last year’s return can mean faster cash for repairs, rebuilding and replacing personal property. However, depending on your income the year of the disaster, you may increase your tax savings by waiting to claim losses on the current year return.
To determine an item’s deductible amount, subtract any insurance reimbursement from the value of the item (accounting for normal wear and tear or progressive deterioration) and then subtract $100. After totaling all losses, reduce the amount by 10 percent of your adjusted gross income.
“As with all deductions,” Dolmage reminds, “be sure to keep detailed documentation and receipts for each casualty item you claim.”
More disaster preparation tips and resources can be found at www.irs.gov. For step-by-step guidance for claiming losses on current and previous year returns using TaxACT, visit taxact.com.