Don't Mess With Taxes

Satellite image of Hurricane Fiona's landfall on the southwestern corner of Puerto Rico at 3:35 p.m. Atlantic Standard Time on Sunday, Sept. 18. (National Oceanic and Atmospheric Administration photo)

Fiona, the first major hurricane of the 2022 tropical season, not only wiped out power to most of Puerto Rico, it also was responsible for four deaths on the island.

Hurricane Fiona made landfall at the southwestern edge of Puerto Rico the afternoon of Sunday, Sept. 18, but was big and strong enough to wreak havoc across the entire U.S. island territory. The strike came almost exactly five years after Hurricane Maria devastated the island.

One bit of good news is that Hurricane Fiona, a category 3 storm that could grow to category 4 force, is heading north, away from the mainland United States. Bermuda residents are on guard for a possible Fiona landfall.

Another piece of welcome news is that the Federal Emergency Management Agency (FEMA) has declared a major emergency for the entire island. FEMA Administrator Deanne Criswell arrived in Puerto Rico today, Tuesday, Sept. 20, to assess Fiona's damage, and determine what additional resources are needed to support the island's recovery.

And as is standard protocol, the Internal Revenue Service also has stepped in. Today, the tax agency announced a variety of tax-related relief for all individuals and businesses on the island.

Feb. 15, 2023, new tax deadline: Hurricane Fiona victims in all 78 Puerto Rican municipalities now have until Feb. 15, 2023, to file various federal individual and business tax returns and make tax payments. The National Hurricane Center's Twitter post below reveals how the storm swamped the island.

The assorted postponed deadlines are those that occurred from Sept. 17 through next year's mid-February extension date.

The immediate benefit is for Puerto Rico taxpayers who got an extension until Oct 17 to file their 2021 tax return. Since any due tax should have been paid when the extension was filed, Puerto Rico taxpayers who owe more still will see penalties and interest added to those unpaid extension amounts.

The Feb. 15, 2023, deadline also applies to quarterly estimated income tax payments due on Jan. 17, 2023. That's the fourth and final quarterly estimated tax payment for tax year 2022.

Businesses with an original or extended due date also have the additional time. This includes, among other deadlines, calendar-year corporations whose 2021 extensions run out on Oct. 17. Similarly, tax-exempt organizations also have the additional time, including for 2021 calendar-year returns with extensions due to run out on Nov. 15.

Businesses facing the normal quarterly payroll and excise tax return deadlines of Oct. 31 and Jan. 31, 2023, also get more time to make those filings. Any penalties on payroll and excise tax deposits due after the emergency's Sept. 17 start date and before Oct. 3 will be abated as long as the deposits are made by Oct. 3, 2022.

PR taxpayers join some MS filers: The Feb. 15 deadline for all Fiona affected Puerto Rican taxpayers puts them essentially on the same tax timeline as taxpayers in Hinds County, Mississippi.

Those Magnolia State taxpayers got the extended February due date because of flooding that created a public water supply crisis in the county, home of the state capital of Jackson.

Storm-struck Puerto Rican and Mississippians also get the same treatment that usually is afforded taxpayers in major, presidentially declared disaster areas.

That includes:

• No need to contact the IRS. The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area.
• Consideration of relief for taxpayers who live outside a disaster area, but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area.
  Since all of Puerto Rico is in the FEMA disaster declaration, this shouldn't apply to many resident taxpayers. However, the relief also applies to relief workers associated with recognized government or philanthropic organizations who might miss a tax due date because they are working in the disaster area. People in this situation can call the IRS at (866) 562-5227 to discuss their eligibility for tax relief.
• Option to claim uninsured disaster losses on tax returns filed for the year in which the damage occurred (2022 returns filed in 2023), or on the prior year's return (2021 returns due this year).

Claiming disaster losses: Puerto Rico filers who decide to claim a Fiona disaster loss on their 2021 taxes can do so when they file that extended Form 1040 by next Feb. 15. PR taxpayers who have already filed 2021 taxes can file an amended return using Form 1040-X to claim the losses for that prior year.

Remember, this means you'll have to itemize. If your storm damage losses (and other Schedule A claims) are not more than your standard deduction amount, then itemizing, even to claim disaster losses, is not worth it.

Run the numbers so that you make the tax-smart choice of tax year to get the most advantageous tax result.

Regardless of which tax year you decide to use in claiming major disaster losses, write the disaster designation phrase "Hurricane Fiona" in bold letters at the top of any filing related to the disaster. Also include the FEMA disaster declaration number, which in the Puerto Rico storm is EM-3583-RP, on any return.

The IRS' Disaster Assistance and Emergency Relief for Individuals and Businesses webpage has details on other returns, payments, and tax-related actions qualifying for the additional time.

You also can read more about making major disaster loss tax claims in IRS Publication 547, as well as in my earlier post on what to consider when making a major disaster tax claim.

You also might find these items of interest:

• Don't be lulled by slow 2022 hurricane season. Prepare now
• FEMA wants to end flood insurance for repeatedly doused areas
• IRS and other government resources can help you deal with a natural disaster
• Storm Warnings: Preparing for, recovering from, and helping those affected by natural disasters

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