Don't Mess With Taxes

Damage in the Galliano, Louisiana, area from Hurricane Ida as seen by U.S. Coast Guard overflight on Aug. 30. (Photo courtesy U.S.C.G./VIRIN: 210830-G-G0108-1006M)

Hurricane Ida went from Tropical Depression 9 to a category 4 hurricane that slammed coastal Louisiana on Aug. 29 in just about three days.

The Internal Revenue Service has reacted just as quickly.

Today, the IRS announced that its offering tax relief to Ida victims. That includes pushing the Oct. 15 extended filing deadline (and other tax dates) to Jan. 3, 2022.

The tax relief applies to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance due to damages from Hurricane Ida. Right now, that's the entire state of Louisiana.

However, adds the IRS, taxpayers in Ida-impacted localities in neighboring states that FEMA ultimately designates as major disaster areas also will qualify for the same tax relief.

You can check out FEMA's Ida declaration and subsequent updates at its website. The IRS also maintains a running list of storm-struck localities eligible for tax relief at its special disaster relief page.

More time to file 2020 taxes: The immediate tax relief is postponement of various tax filing and payment deadlines that occurred starting on Aug. 26, when Ida formed.

Affected individuals and businesses now have until Jan. 3, 2022, to file returns and pay any taxes that were originally due during this period.

For individual taxpayers who had filed for an extension to complete their 2020 returns, this means that instead of getting their Form 1040s etc. to the IRS by Oct. 15, they have until the new January due date.

If, however, you didn't pay all the tax due with that return when you got your extension, you still need to get that money to the IRS as soon as you can. Since payment of any due 2020 tax was required by this year's May 17 filing deadline, even if you applied for an extension, those unpaid taxes are not eligible for Hurricane Ida tax relief. Penalty and interest charges on unpaid tax bills are still accruing.

Extended estimated tax payments: The Jan. 3, 2022, deadline also applies to the quarterly estimated income tax payment normally due on Sept. 15.

Filers who must make these tax payments on earnings that aren't subject to withholding now have until the early January due date to make this third 1040-ES payment.

Businesses also get more time: As for businesses, the IRS says quarterly payroll and excise tax returns normally due on Nov. 1 also are postponed. The delay also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 15.

Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2020 extensions run out on Oct. 15.

In addition, the IRS will abate penalties on payroll and excise tax deposits due on or after Aug. 26 and before Sept. 10 as long as the deposits are made by September 10, 2021.

Automatic deadline applied: Louisianans don't need to do anything to get the added tax filing time. The IRS automatically identifies taxpayers located in the covered disaster area — which right now is all of the Pelican State — and applies the disaster-related filing and payment relief.

However, if you reside or have a business outside Louisiana, but have records necessary to meet a tax deadline in the state, you also might qualify for more time to complete those tasks.

In these cases, call the IRS' toll-free disaster hotline at (866) 562-5227 to discuss your circumstances and request the same relief.

The tax relief also covers workers who are assisting with relief activities conducted by a recognized government or philanthropic organization.

Let IRS know about notices: Also, since many of the IRS operations are automated, it's possible that taxpayers in the Ida disaster area might get late-filing or late-payment penalty notices even though they've now been given more time to file and pay.

If that happens, call the telephone number on the notice to have the IRS abate the penalty.

Timing of disaster claims: Finally, the Ida disaster relief, as with all major disaster declarations, gives affected taxpayers the option to decide when to claim any uninsured losses as an itemized tax deduction.

You can claim the losses in the year they happened, meaning you'll do so when you file your 2021 return next year. Or you can claim them on your prior year return.

Of course, you'll have to run the tax numbers for both years to see which provides the better tax result.

One of the main reasons to claim losses on a prior-year return is that it generally means you get the tax relief in the form of a refund sooner. Having that tax money in hand now could help with repairs and other recovery efforts.

Affected Louisiana filers who got extensions to file their 2020 returns can make the claim on that year's 1040 Schedule A when they do file it, now by Jan. 3. Individuals who already submitted their 2020 returns, but want to claim Ida's losses on that return will have to file an amended tax return.

You'll also have to include a completed Form 4684, Casualties and Thefts. You can read more about this process in my recent post on considerations in making a major disaster tax claim.

Whether you're just filing your 2020 taxes or sending in a Form 1040-X this year, be sure to write the FEMA declaration number – DR-4611-LA – on the form. That will alert the IRS that it should expedite the processing of the return.

You also might find these items of interest:

• Tracking down tax records to file a disaster claim
• IRS and other government resources can help you deal with a natural disaster
• Home basis, not market value, key amount in calculating disaster loss tax claim
• Storm Warnings: Preparing for, recovering from & helping those affected by natural disasters

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