Don't Mess With Taxes

A home north of Clarksville, Tennessee, was destroyed on Dec. 9 by an EF-3 tornado. It was part of a series of deadly twisters that ravaged the area on Dec. 9-10. (National Oceanic and Atmospheric Administration photo via Wikimedia Commons)

For some, the holidays are hard enough without a major catastrophe intervening. But unfortunately for some Tennessee residents, that's just what happened earlier this month.

On Dec. 9 and 10, at least six tornadoes touched down in Middle Tennessee.

The National Weather Service (NWS) said that the EF-3 tornado in the Clarksville's area carved a path 42 miles long with winds estimated at 150 miles per hour. Another tornado was an EF-2 that traveled 31 miles, leaving a path of damage in Nashville, Madison, Hendersonville, and Gallatin.

When the storms finally passed, seven people were dead, dozens injured, hundreds without homes and businesses, and thousands without power.

The December twister outbreak, which the NWS determined included three other EF-2 tornadoes and an EF-1, was a major reason why 2023 is the Volunteer State's seventh-deadliest year for tornadoes.

Federal relief, including for taxes: Following Federal Emergency Management Agency (FEMA) assessments that led the White House to declare parts of Tennessee as major disaster areas, the Internal Revenue Service granted the storm-affected residents tax relief.

The special tax considerations apply to individuals who live in or have a business in Davidson, Dickson, Montgomery, and Sumner counties. If FEMA adds other counties to the Tennessee twister disaster area, those filers also will get the same relief.

UPDATE, Jan. 9, 2024: FEMA has added Cheatham, Gibson, and Stewart counties to the designated disaster area.

UPDATE, Feb. 1, 2024:  Robertson and Weakley Counties have been added to the disaster area.

June 17, not mid-April, is new due date: The major tax matter affected by the IRS action is the filing deadline for tax year 2023 individual returns. Instead of the normal April 15 deadline, these taxpayers now have until June 17, 2024, to file that return.

If storm affected filers find that they still can get their 1040s completed by June 17, they can request an extension until Oct. 15. If the extension request — which, as its name indicates, is automatically granted if made in time — is made by April 15, it can be done by electronically filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

However, if Tennessee disaster area filers discover after April 15 that they won't be able to meet their new June 17 deadline, they must file a paper Form 4868 by the new June due date.

Other tax deadlines delayed: In addition to postponing the usual April tax return deadline into mid-June, the Tennessee storm and tornado tax relief also applies to various other tax filing and payment deadlines that occurred from Dec. 9, 2023, through June 17, 2024

This means, for example, that the June 17, 2024, deadline also will now apply to:

• 2023 contributions to IRAs and health savings accounts for eligible taxpayers.

• Quarterly estimated income tax payments normally due on Jan. 16 and April 15, 2024.

• Quarterly payroll and excise tax returns normally due on Jan. 31 and April 30, 2024.

• Calendar-year partnership and S corporation returns normally due on March 15, 2024.

• Calendar-year corporation and fiduciary returns and payments normally due on April 15, 2024.

• Calendar-year tax-exempt organization returns normally due on May 15, 2024.

In addition, businesses get added penalty relief regarding payroll and excise taxes. The IRS says that it will abate penalties that usually would apply if a business failed to make payroll and excise tax deposits due on or after Dec. 9, 2023, and before Dec. 26, 2023, as long as these deposits are made by Dec. 26, 2023.

No special filing necessary: As is the normal course of tax business after a major disaster, Tennessee taxpayers in the counties where twisters touched down don't have to take any special steps to get the

The IRS relies on its taxpayer database for disaster relief, meaning it automatically provides filing and penalty relief to any taxpayer whose IRS address of record is in the disaster area.

However, it is possible an affected taxpayer may not have an IRS address of record located in the disaster area. This could be the case, for example, where someone moved to Florida after filing their return and did not notify the IRS of their new Tennessee address.

In these circumstances, affected taxpayers could receive a late filing or late payment penalty notice from the IRS for the postponement period. The taxpayer should call the number on the notice to have the penalty abated.

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 areas. These taxpayers should contact the IRS at (866) 562-5227.

This option also applies to workers assisting the relief activities provided through a recognized government or philanthropic organization.

Claiming a disaster tax deduction: Federal tax law also provides those who've endured a major disaster the option to claim any uninsured losses as a tax deduction. You also get to decide on the tax year you use to make the claims.

As long-time readers know, I've discussed this option in the all-too-frequent disaster declaration posts here on the ol' blog. You can find more about disaster claim filings in my post Considerations in making a major disaster tax claim.

But I do want to reiterate here the choice of tax year in claiming eligible disaster losses. You can claim qualifying losses in either the year the disaster occurred, or the previous tax year.

Tennessee taxpayers who can claim tornado-related losses as an itemized tax deduction need to carefully determine whether to count the damage claims on their 2023 or 2022 tax returns.

If the prior-year claim yields the bet tax return results, they'll need to amend that filing and claim the hurricane losses on Form 1040-X.

However, if it's better for them to claim disaster losses on their 2023 returns, then they can do that on that filing that's now due by July 17, 2024.

Regardless of which tax filing you choose to make the disaster loss claim, include FEMA's Tennessee tornadoes disaster number on your regular or amended return. That's number DR-4751-TN.

Other possible disaster tax relief: 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. IRS Publication 525, Taxable and Nontaxable Income, has details.

Additional relief also 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 percent early distribution tax. Eligible taxpayers also can spread the income over three years.

Disaster area taxpayers may also be eligible to make a hardship withdrawal from a retirement plan. Each plan or IRA has specific rules and guidance for their participants to follow.

You can read more about making major disaster loss tax claims in IRS Publication 547. The IRS' Disaster Assistance and Emergency Relief for Individuals and Businesses page also has more information on returns, payments, and tax-related actions for qualifying taxpayers.

Finally, you also might find these earlier disaster-related blog posts of interest:

• Picking up the pieces after a major disaster
• Document your property for tax, insurance claims before storms hit
• Storm Warnings: Preparing for, recovering from, and helping those affected by natural disasters

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