When you think of disaster planning, taxes may be the last thing that comes to mind as something you should prepare for. But, now that we are at the halfway point for hurricane season, and the peak of wildfire season, it’s worth taking some time to look at how to prepare yourself financially in the case of a disaster. That starts with making sure your documents are in order. You do not have to do much in advance, but doing just a little can save you money, time, headache, and even professional expenses later.
The tax laws have many favorable rules for taxpayers if they have been negatively impacted by a storm, fire, theft, or other significant loss, such as: extensions of time to file tax returns and estimated tax payments; rules that allow for deductions of economic loss from a disaster event; and rules allowing for faster tax filing that permit a taxpayer to take a tax deduction faster and get tax refund dollars much quicker than the normal filing time. The most important requirement under the tax loss rules to deduct your loss from a disaster is that you be able to prove how much you paid for an item, or its basis and how much the property was worth after the disaster.
That is where a bit of advanced planning can help during an otherwise very traumatic event. Being able to record and recall what all was lost after an event is a very difficult task. In fact, restoring life to normal typically causes the loss computation effort to get even further delayed causing it to be even more difficult to correctly recall and calculate the true tax deduction.
So what is a taxpayer to do to adequately prepare? Take these three simple steps now to make sure everything you need for tax purposes is ready:
Locate your prior-year tax returns (at least three years) and make sure they are safely and securely stored along with your other important permanent records. Documents like your home purchase documents and mortgage documents along with birth certificates, passports, and other very import records should be safely protected.
Have all your files together? Great. Now you’ll want to make a digital record of everything in the event your files are damaged. There are many safe and affordable (some even free!) ways to store your documents online. Plus, you can have them scanned inexpensively at your local office store if you don’t have a scanner yourself.
You’ll also want to create a digital record of your assets. Photographs or short video of your home and other assets with a camera or smartphone can be a great start to what all you own and help with determining both ownership documentation and value.
Jackson Hewitt also has a list of resources and tips online to help you plan, or even seek help after a disaster. A final note is that these best practices are not just for homeowners. They apply to all taxpayers. Even those who rent can lose their possessions, assets and records. The tax loss rules are based on the value of what you lost. Do not be misled that you will not be impacted if you do not own a home, car and boat.And don’t forget, if a disaster strikes, your local Jackson Hewitt office is ready to help you.