Prepare for Hurricanes, Natural Disasters by Safeguarding Tax Records
As hurricane season is approaching and tornado and other natural disasters are in full swing, as evidenced by the recent Oklahoma disaster, taxpayers should be aware of the devastating effects of natural disasters on record loss for businesses, as well as, individuals. While the IRS usually provides for allowances in terms of filing deadlines to those affected, the loss of information could be very detrimental.
To safeguard financial information and have continuity of operations, businesses/individuals should have an effective disaster recovery plan. In the case of a small company, this plan can be formal or informal. The plan should, however, be able to effectively accomplish the desired result of safeguarding the information.
Some of the steps in the plan should be:
- To have an alternative site location for staff to report to in case of the disaster at a primary location
- Perform periodic backup of the information and make sure it is stored off site
- Test run the backup site to ensure its operational feasibility
The taxpayer should consider extension relief provided to those affected by hurricanes or other disasters. Attention should be given to IRS announcements pertaining to affected areas. For instance, after the recent tornado in Oklahoma, the IRS posted a notice (IR-2013-53) on May 21, 2013, containing guidelines for tax relief to the tornado victims allowing for payment deadlines extended to September 30.
In addition to maintaining continuity of operations and safeguarding financial information, businesses need to be able to substantiate casualty losses. Taxpayers who suffered disaster related losses which are not covered by insurance can deduct such losses on a federal income tax return. A casualty loss is the damage, destruction or loss of property from any sudden, unexpected, or unusual event such as a hurricane.
In order to be able to obtain the maximum deduction the taxpayer needs to maintain up to date information for its valuables and assets. A clear trail of the existence and value of the assets prior to the event such as photographs or videotapes of the home or business would serve as the good backup for the casualty losses reportable for the deduction.
The IRS has posted a hotline for affected taxpayers to discuss disaster related issues. The hotline number is 1-866-562-5227.