The devastation left behind by Hurricane Sandy could affect your 2012 business and personal tax filings.
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The IRS has issued several bulletins to help taxpayers overcome these problems and ease the burden of rebuilding and making disaster-related filings. Residents that live in federally-declared disaster areas are eligible to receive the assistance and include many counties located in New York, Connecticut, Rhode Island and New Jersey.
Loans from retirement plans. Participants in 401(k) plans, 403(b) tax-sheltered annuities and state and local government employees with 457(b) deferred-compensation plans can take out loans from these plans as part of a hardship distribution. IRA participants are not allowed to take out loans but may be eligible to receive distributions under liberalized procedures. Check with your plan manager to find out if you qualify. The loan must be taken out by Feb. 1, 2013 in order to qualify under the hardship rules.
Donations. Workers will be allowed to trade in their accrued vacation, personal leave and sick time to their employers for a cash payment made to a bona fide tax exempt organization providing relief to the victims of Hurricane Sandy. It’s an unusual method of making a donation to a good cause, but is nevertheless very effective. The value of the donated time will not be included on the employee’s W2, the employer will enjoy a deduction. The deadline for this opportunity is Jan. 1, 2014.
Extensions of filing deadlines. Any filing deadlines for individuals and businesses from late October to the end of January 2013 will be extended to Feb. 1, 2013. This includes payroll and excise tax returns normally due Oct. 31 and Jan. 31 as well as the accompanying payments. Also included is the fourth quarter installment of estimated tax payment due on Jan. 15, 2013. Penalties and interest will be abated if you qualify.
Even if your business was not located in the disaster area but your books and records or your tax professional were located in a designated zone, you will still qualify for relief from these deadlines.
According to the IRS, the following counties are included for relief:
In Connecticut (starting Oct. 27): Fairfield, Middlesex, New Haven and New London Counties and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation located within New London County;
In New Jersey (starting Oct. 26): Atlantic, Bergen, Burlington, Camden, Cape May, Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren;
In New York (starting Oct. 27): Bronx, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Sullivan, Suffolk, Ulster and Westchester;
In Rhode Island (starting Oct. 26): Newport and Washington counties.
New charities. While the IRS encourages Americans to donate to existing charities to help in the relief effort, it also supports the organization of new charities. In so doing, it will expedite the application processing of these organizations. According to the IRS, “Organizations should apply for tax-exempt status by filing IRS Form 1023 and write at the top of the form “Disaster Relief, Hurricane Sandy.”
If you wish to make a donation, check the web site of the Federal Emergency Management Agency (FEMA) and the U.S. Government’s main Web portal at FirstGov.gov for lists of organizations that provide support to victims of Hurricane Sandy.
Taxpayers also need to be careful of scams. Make sure you are making a donation to a recognized 501(c) (3) organization and be wary of websites with similar names to well-known charities. Do not send cash or divulge your personal financial information such as your Social Security number. Note that charities do not need your social security number in order to provide you with a receipt for tax purposes.
Call the IRS toll-free disaster assistance telephone number, 1-866-562-5227, if you are a hurricane victim with specific questions about tax relief or disaster related tax issues.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.