irs

Retirement Tax

Retirement Plan Distributions for Sandy Victims

The Internal Revenue Service announced that 401(k)s and similar employer-sponsored retirement plans can be used to make loans and hardship distributions to victims of Hurricane Sandy and members of their families.

401(k) plan participants, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, and state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

Retirement plans can provide this relief to employees and certain members of their families who live or work in the disaster area. To qualify for this relief, hardship withdrawals must be made by Feb. 1, 2013.

The IRS is also relaxing procedural and administrative rules that normally apply to retirement plan loans and hardship distributions. As a result, eligible retirement plan participants will be able to access their money more quickly with a minimum of red tape. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.

This broad-based relief means that a retirement plan can allow a Sandy victim to take a hardship distribution or borrow up to the specified statutory limits from the victim’s retirement plan. It also means that a person who lives outside the disaster area can take out a retirement plan loan or hardship distribution and use it to assist a son, daughter, parent, grandparent or other dependent who lived or worked in the disaster area.

Plans will be allowed to make loans or hardship distributions before the plan is formally amended to provide for such features. In addition, the plan can ignore the limits that normally apply to hardship distributions, thus allowing them, for example, to be used for food and shelter. If a plan requires certain documentation before a distribution is made, the plan can relax this requirement as described in the Announcement.

Ordinarily, retirement plan loan proceeds are tax-free if they are repaid over a period of five years or less. Under current law, hardship distributions are generally taxable. Also, a 10 percent early-withdrawal tax usually applies.

If you have any questions about hardship distributions from your retirement account, please give us a call. We can help.

Tax

IRS Announces 2013 Standard Mileage Rates

Beginning January 1, 2013, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) is:

  • 56.5 cents per mile for business miles driven
  • 24 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The standard mileage rate are based on an annual study of the fixed and variable costs of operating an automobile.

Let us know if you have questions about which driving activities you should monitor as tax year 2013 begins.

Asset Protection Tax

Tax Relief for Those Affected By Natural Disasters

With hurricanes, tornadoes, floods, wildfires, and other natural disasters affecting so many people throughout the US this year, many have been left wondering how they’re going to pay for the cleanup or when their businesses will be able to reopen. The good news is that there is some relief for tax payers–but only if you meet certain conditions.

Recovery efforts after natural disasters can be costly. For instance, when Hurricane Irene struck last year causing widespread flooding, many homeowners were not covered because most standard insurance policies do not cover flood damage.

Tax Relief for Homeowners

Fortunately, personal casualty losses are deductible on your tax return as long as the property is located in a federally declared disaster zone AND these four conditions are met:

1. The loss was caused by a sudden, unexplained, or unusual event. 
Natural disasters such as flooding, hurricanes, tornadoes, and wildfires all qualify as sudden, unexplained, or unusual events.

2. The damages were not covered by insurance.
You can only claim a deduction for casualty losses that are not covered or reimbursed by your insurance company. The catch here is that if you submit a claim to your insurance company late in the year, your claim could still be pending come tax time. If that happens you can file an extension on your taxes. Call us if you need help filing an extension or have any questions about what losses you can deduct.

3. Your losses were sufficient to overcome reductions required by the IRS.
The IRS requires several “reductions” in order to claim casualty losses on your tax forms. The first is that effective December 31, 2009 you must subtract $100 from the total loss amount. This is referred to as the $100 loss limit.

Second, you must reduce the amount by 10 percent of your adjusted gross income (AGI) or adjusted gross income. For example, if your AGI is $25,000 and your insurance company paid for all of the losses you incurred as a result of flooding except $3,100 you would first subtract $100 and then reduce that amount by $2500. The amount you could deduct as a loss would be $500.

4. You must itemize.
As it now stands, you must itemize your taxes in order to claim the deduction. If you normally don’t itemize, but have a large casualty loss you can calculate your taxes both ways to figure out which one gives you the lowest tax bill. Contact us if you need assistance figuring out which method is best for your circumstances.

Tax Relief for Individuals and Business Owners

The IRS often provides tax relief for those affected by natural disasters. For example, individuals and businesses affected by Hurricane Isaac with tax filing and payment deadlines that occurred on or after August 26, 2012 have until January 11, 2013 to file their returns and pay any taxes due. This includes corporations and businesses that previously obtained an extension until September 17, 2012, to file their 2011 returns and individuals and businesses that received a similar extension until October 15. It also includes the estimated tax payment for the third quarter of 2012, normally due September 17. If you’ve been affected by a natural disaster, please call our office. We’ll help you figure out when your tax payments are due.

Tax Relief Tips

The IRS also states that you have two options when it comes to deducting casualty losses on your tax returns. You can deduct the losses in the year in which they occurred or claim them for the prior year’s return. So if you were affected by a natural disaster this year you can claim your losses on your 2012 tax return or amend your 2011 tax return and deduct your losses. If you choose to deduct losses on your 2011 tax return, then you have one year from the date the tax return was due to file it.

Confused about whether you qualify for tax relief after a recent natural disaster? Give us a call. We’ll help you figure out the best way to handle casualty losses related to hurricanes and other natural disasters.

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