Taxpayers impacted by Hurricane Lee in Maine and Massachusetts qualify for tax relief

On September 25, 2023 the Internal Revenue Service (IRS) announced tax relief for individuals and businesses affected by Hurricane Lee anywhere in Maine and Massachusetts. These taxpayers now have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The February 15, 2024, deadline will now apply to:

• Individuals who had a valid extension to file their 2022 return due to run out on October 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief.
• Quarterly estimated income tax payments normally due on September 15, 2023, and January 16, 2024.
• Quarterly payroll and excise tax returns normally due on October 31, 2023, and Jan. 31, 2024.
• Calendar-year partnerships and S corporations whose 2022 extensions run out on September 15, 2023.
• Calendar-year corporations whose 2022 extensions run out on October 16, 2023.
• Calendar-year tax-exempt organizations whose extensions run out on November 15, 2023.

In addition, penalties for the failure to make payroll and excise tax deposits due on or after August 30, 2023, and before September 14, 2023, will be abated as long as the deposits are made by September 14, 2023.

Other Areas Having Extended Deadlines:

The IRS announced on January 10, 2023 that California storm victims have until May 15, 2023 to file various federal individual and business tax returns and make tax payments. Subsequently on January 13, 2023 the California Franchise Tax Board (“FTB”) announced that California storm victims also have until May 15, 2023 to file various California individual and business tax returns and make tax payments.  Then on February 24, 2023 the IRS announced that their extended deadline for eligible California storm victims would now be extended to October 16, 2023.

The IRS announced on August 18, 2023 that Hawaii wildfire victims in Maui and Hawaii counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on August 30, 2023 that Idalia storm victims in various Florida counties have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS announced on September 13, 2023 that Idalia storm victims in Georgia have until February 15, 2024, to file various federal individual and business tax returns and make tax payments.

IRS Tax Relief Details

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance.

For Maine and Massachusetts – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maine or Massachusetts.

For Georgia – Currently, relief is available to affected taxpayers who live or have a business anywhere in Appling, Atkinson, Bacon, Berrien, Brantley, Brooks, Bulloch, Camden, Candler, Charlton, Clinch, Coffee, Colquitt, Cook, Echols, Emanuel, Glynn, Jeff Davis, Jenkins, Lanier, Lowndes, Pierce, Screven, Tattnall, Thomas, Tift, Ware and Wayne counties.

For Florida – Currently, relief is available to affected taxpayers who live or have a business anywhere in Alachua, Baker, Bay, Bradford, Brevard, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Franklin, Gadsden, Gilchrist, Gulf, Hamilton, Hardee, Hernando, Hillsborough, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Nassau, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia and Wakulla counties

For Hawaii – Currently, relief is available to affected taxpayers who live or have a business anywhere in Maui and Hawaii counties.

For California – Currently, relief is available to affected taxpayers who live or have a business anywhere in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo, and Yuba counties.

The current list of eligible localities is always available on the disaster relief page on IRS.gov.  The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area.

The additional relief postpones until October 16, 2023 (California) or February 16, 2024 (Hawaii), various tax filing and payment deadlines, including those for most calendar-year 2022 individual and business returns.

FTB Tax Relief Details

On March 10, 2023 the FTB announced that it too would follow IRS allowing taxpayers impacted by 2022-23 winter storms to have an extension to October 16, 2023 to file individual and business tax returns and make certain tax payments.  This includes:

• Individuals whose tax returns and payments are due on April 18, 2023.
• Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
• Business entities whose tax returns are normally due on March 15 and April 18.
• Pass-through entity (PTE) elective tax payments due on March 15, 2023 and June 15, 2023.

However, the postponement of time to file and pay does not apply to residents and businesses located in the following 5 counties: Imperial, Kern, Lassen, Plumas, and Sierra. Additionally, if your principal residence or place of business is in Modoc or Shasta counties, income tax filing and payment deadlines that fall between February 21, 2023, and August 15, 2023, are due August 15, 2023.

Residents and businesses located in the above 5 non-qualifying counties must file and pay by the normal established deadlines. This includes:

• Individuals whose tax returns and payments are due on April 18, 2023.
• Quarterly estimated tax payments due January 17, 2023, March 15, 2023, April 18, 2023, June 15, 2023, and September 15, 2023.
• Business entities whose tax returns are normally due on March 15 and April 18.
• PTE elective Tax payments due on March 15, 2023, and June 15, 2023.

Tax Planning Tip

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2023 return normally filed next year), or the return for the current year (2022).

Be sure to write the FEMA declaration number on any return claiming a loss.  That number being: “FEMA-3591-DR” for California or “DR-4724-HI” for Hawaii or “DR-3596-EM” for Florida or “4738-DR” for Georgia or “3598-EM” for Maine or “3599-EM” for Massachusetts.

When filing a California return claiming a loss, be sure to write the name of the disaster in blue or black ink at the top of your tax return to alert FTB.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents.

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

Importance To Preserve Records

Keep in mind that the IRS has up to three years to select a tax return for audit. The FTB has up to four years to select a tax return for audit. In some cases this period is extended to six years. When a taxpayer is selected for audit, the taxpayer has the burden of proof to show that expenses claimed are properly deductible. Having the evidence handy and organized makes meeting this burden of proof much easier.

Essential Records to Have for a Tax Audit

If you are getting ready for a tax audit, one of the most important things to do is gather and organize your tax records and receipts. There’s a good chance that you have a large amount of documents and receipts in your possession. No matter how organized you are, it can be a daunting task to collect the right pieces and make sure that you have them organized and handy for the audit conference.

We have seen many tax audits that hinge on whether or not the taxpayer can provide proper documentation for their previous tax filings. A tax lawyer in Orange County or elsewhere can make sure that the documentation is complete and proper.  By submitting this to your tax attorney in advance of the audit, your tax attorney can review your documentation and determine if there are any gaps that need to be addressed before starting the dialogue with the IRS agent.

So what are the most essential tax records to have ahead of your audit? Here are a few must-have items:

• Any W-2 forms from the previous year. This can include documents from full-time and part-time work, large casino and lottery winnings and more.
• Form 1098 records from your bank or lender on mortgage interest paid from the previous year.
• Records of any miscellaneous money you earned and reported to the IRS including work done as an independent contractor or freelancer, interest from savings accounts and stock dividends.
• Written letters from charities confirming your monetary donations from the previous year.
• Receipts for business expenses you claimed.
• Mileage Logs for business use of vehicle.
• Entertainment and Travel Logs for business

Tips On Reconstructing Records

Reconstructing records after a disaster is important for several reasons including insurance reimbursement and taxes. Most importantly, records can help people prove their disaster-related losses. More accurately estimated losses can help people get more recovery assistance like loans or grants.

Whether it’s personal or business property that has been lost or destroyed, here are some steps that can help people reconstruct important records.

Tax records

Get free tax return transcripts immediately using the Get Transcript on IRS.gov or through the IRS2Go app.  Tax return transcripts show line-by-line the entries made on your Federal income tax returns.  The most three recent tax years are available.

Financial statements

People can gather past statements from their credit card company or bank. These records may be available online. People can also contact their bank to get paper copies of these statements.

Property records

• To get documents related to property, homeowners can contact the title company, escrow company or bank that handled the purchase of their home or other property.
• Taxpayers who made home improvements can get in touch with the contractors who did the work and ask for statements to verify the work and cost. They can also get written descriptions from friends and relatives who saw the house before and after any improvements.
• For inherited property, taxpayers can check court records for probate values. If a trust or estate existed, taxpayers can contact the attorney who handled the trust.
• When no other records are available, people should check the county assessor’s office for old records that might address the value of the property.
• Car owners can research the current fair-market value for most vehicles. Resources are available online and at most libraries. These include Kelley’s Blue Book, the National Automobile Dealers Association and Edmunds.

Develop And Implement Your Backup Plan

Do not wait for the next disaster to come for then it may be too late to retrieve your important records for a tax audit or for that matter any legal or business matter. And if you do get selected for audit and do not have all the records to support what was claimed on your tax returns, you should contact an experienced tax attorney who can argue the application of your facts and circumstances to pursue the least possible changes in an audit.

The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.