The IRS has announced that individuals and businesses impacted by the devastating wildfires in southern California will be granted tax relief. Residents and business owners in Los Angeles County, or the designated area by FEMA, will have filings or payments due from Jan. 7 extended automatically to Oct. 15. If the disaster area is expanded to include other counties, those affected will also receive relief. The most up-to-date list of eligible areas can be found on the IRS’ tax relief in disaster situations webpage.
Miklos Ringbauer, a CPA in Los Angeles, explained that when a disaster is declared, federal activities are paused. This means that income tax payments, retirement contributions, and other obligations are postponed for residents in the affected area, with no penalties or interest added.
Regarding the application process for tax relief, the IRS stated that if your address on file is in the disaster zone, relief will be automatically applied without the need to contact the agency. If your address is not in the disaster area, but you have records necessary to meet deadlines located there, you should call the IRS. If your tax preparer is affected, you may request an extension through them.
The IRS also announced that IRS Free File will start accepting individual tax returns on Jan. 10, 2025, for the 2024 tax season. The extension to Oct. 15 applies to various tax obligations, such as individual income tax returns due on April 15, 2024 contributions to IRAs and health savings accounts, quarterly estimated income tax payments, payroll and excise tax returns, and more.
Additionally, relief is available for penalties on payroll and excise tax deposits due between Jan. 7 and Jan. 22, as long as the deposits are made by Jan. 22. Taxpayers are also eligible for other forms of relief beyond deadline extensions.
Individuals in the disaster-stricken area who have endured uninsured or unreimbursed losses related to the disaster have the option to claim these losses on either their tax year 2025 return or amend the prior year’s return. It is important to note that disaster assistance, such as housing aid, transportation, food from charitable organizations, or assistance from friends or aid agencies, is not considered as taxable income. According to Ringbauer, these forms of aid are classified as nontaxable events.
The IRS has announced that taxpayers facing such circumstances may qualify for a special disaster distribution from their retirement fund without being subjected to the additional 10% early distribution tax. This provision allows taxpayers to spread the income over a period of three years. Additionally, taxpayers may also be eligible to make a hardship withdrawal to alleviate financial burdens resulting from the disaster.
For those seeking assistance with their financial recovery, it is recommended to reconstruct financial records for purposes such as applying for loans, mortgages, or filing taxes. Resources such as financial advisers or the IRS, which typically have access to wage income information, can be valuable in this process. By requesting an IRS transcript, individuals can easily access pertinent financial data during this challenging time.
Moreover, individuals providing support and aid to local residents and businesses in disaster-stricken areas may qualify for extensions on filing and payment deadlines. Ringbauer emphasizes the importance for donors contributing money or goods to validate the legitimacy of the charitable organizations they choose to support in order to claim tax deductions.
Medora Lee, a reporter specializing in money, markets, and personal finance for USA TODAY, offers insights and guidance on navigating financial challenges post-disaster. For further assistance and informative content on personal finance and business news, readers are encouraged to subscribe to the free Daily Money newsletter, curated by USA TODAY and accessible via email every Monday through Friday morning.
In conclusion, Californians residing in disaster zones are provided with tax extensions and other forms of relief to alleviate financial burdens resulting from unforeseen disasters. As individuals rebuild their lives and communities in the aftermath of such events, it is crucial to leverage available resources and assistance to facilitate the recovery process.
