It’s hard to get your assets in order when you’re worried about the impending red blip on the radar. But a few precautions taken early will save you a lot of headache in the long run. And you might even be able to write off some of the damage caused by the natural disaster on your tax return.
How do I prepare for a natural disaster?
While no one can truly prepare themselves, there are several steps you can take to protect yourself.
- Form an emergency plan- Create a basic disaster supplies kit. Form a general plan with meeting locations for an emergency. Choose a place to go in the event of an evacuation. Make sure to pack your prescription medication, appropriate clothes, pillows, blankets, flashlights, and other necessary items if you have to evacuate. Read more about evacuation kits here.
- Protect your home- Whether its installing new storm shutters or replacing your roof, making small adjustments to your home can help reduce the amount of damage from the storm. Also, take pictures of your home every few months so you have a document of what exactly was damaged to show to your insurance company. Make sure to back these photos up.
- Keep track of the storm’s location- Stay on top of where the storm is, what category it is, and where its headed next so you know whether or not to evacuate.
- Organize your finances and check your insurance- Know how much you have in savings for an emergency. If it’s not enough, consider setting aside a little extra this month to make sure you’re prepared for the worst-case scenario. Are you covered in case of a flood, fire, or tornado? What exactly are you insured against? Make any necessary adjustments.
- Secure your documents- Keep all your important documents in a weatherproof box and keep a second copy in a separate secure location to prevent confusion later on. Consider making the second copy digital to save space.
- Make a plan for your pets- Pets are an important part of our lives, and it’s easy to lose track of them in a disaster. Discuss a plan with your family on how to best protect your pets in the event of a storm.
- Know the tax laws- Keep reading below to find out if you can write off the damages from a natural disaster on your tax return.
What disasters are covered?
Under the Tax Cuts and Jobs Act, only federally declared disasters can be written off. In 2017 Hurricane Harvey and the California Wildfires were two of the federally declared disasters. Check this page from the IRS to see if your disaster is covered.
Am I covered?
You are covered if your tax records fall in the federally designated disaster area. This makes you an “affected taxpayer” who is eligible for special tax benefits. This does not apply just to individuals, but also business owners, sole proprietors, and business entities. Also, if your tax preparer lives in the disaster area you may qualify for relief, even if you live outside the area.
Can I have my return postponed or extended?
Yes, if you are located in the disaster area.
To have your return extended you must:
- Call the Disaster Assistance Hotline at 1(866)-562-5227.
- Say that your records are in a covered disaster area.
- Provide the FEMA number of the county where your tax preparer is located.
How can I protect my important tax documents from a natural disaster?
There are several ways to ensure the safety of your tax and other legal documents.
- Back up your records electronically.
- Store them in a weather and fireproof box.
- Keep a second copy in a secured location away from your home.
What are the special rules for affected taxpayers?
- Free access to retirement accounts- Borrow up to $100,000 from a retirement plan such as a 401(k) to pay for damages.
- Extended deadline for tax filing- Depending on the disaster, an extra extension might be offered to those affected. In 2017 those affected by Hurricane Harvey were offered a further delay in filing past the normal six-month extension.
- Casualty deductions- Deduct damage done to your personal home by an officially declared disaster. Subtract $100 from the amount of damage caused. Then subtract 10% of your adjusted gross income. This does not include any amount not covered by insurance.
This article is up to date and accounts for tax law changes for tax year 2018 (tax returns filed in 2019). Learn more about tax reform enacted under the Tax Cuts and Jobs Act here.