Don't Mess With Taxes

Hurricane prep time

What a weird hurricane season. Here in the waning days, we're getting some action in the Gulf of Mexico.

I hope that forecasts are correct and Ida will make landfall as a tropical storm instead of a hurricane. Still, the rains associated with these so-called lesser systems often cause more damage and, unfortunately, too many drowning deaths.

So first of all, everyone in Ida's path, take precautions now and stay safe. The mantra "Turn around, don't drown" is true.

If you don't have a full-fledged disaster kit in place, it's probably too late, particularly for food and first aid items. Again, here's hoping that Ida effects will be minimal and you won't need to bandage any minor wounds, read by flashlight or eat only canned goods for very long.

But you still have time to gather up your financial materials and make sure they are protected and handy in case you need them after the storm passes. Hurricane season financial preparations has details on what you can do now.

And remember that if you do suffer property damage in Ida or any other casualty situation, you might be able to get some help from Uncle Sam via your tax return.

Related posts:

• Tax relief for disaster victims
• Insurance tips for storm victims
• Financial and tax tips for storm season

Ida graphic courtesy National Hurricane Center

Home repairs postpone postings (again)

Just a quick note to let you know that today's posts, in particular the second edition of Tax Twitter Tuesday, will be delayed a bit.

As regular readers might remember, we had a bit of a disaster in our home late last month. It could have been much worse, but it's bad enough. And the hubby and I are learning that getting the old abode back to its former glory is a bit of a disaster itself.

We've been living with much of our hardwood flooring and drywall gone for several weeks. There to the left is a photo of a small area of what I've been stumbling over for the last few weeks.

Then we had to move most of our downstairs belongings upstairs to facilitate repairs.

But at least all out stuff is still under one roof. Very cozily under, but together nonetheless.

Today the repairs to our home's water damage itself, as well as the demolition afterward to dry the place out, began. That meant, being an obsessive-compulsive nester, I spent the morning and early afternoon hovering over the first work crew. They certainly looked relieved when I said I had to head upstairs to do some work of my own.

So I'm just now getting in gear. But I will get the job done under these less than ideal circumstances.

I'm keeping my fingers crossed that the same is true for the guys making a lot of noise downstairs!

Real disaster relief: My heart goes out to folks who've suffered through much worse disasters. Thank goodness, we've had a pretty quiet storm season this year. But as weather forecasters say, it only takes one.

If you do endure a natural catastrophe, you could get special tax treatment if it's an event that's declared a major disaster. Changes to the added tax calculations that must be made in these cases were included in the National Disaster Relief Act of 2008 and apply through the 2009 tax year.

Even if your disaster is not at the hands of Mother Nature, you still might be able to get some tax relief in the form of a casualty loss claim on Schedule A.

In Publication 547, Casualties, Disasters and Thefts, the IRS defines a casualty as the damage, destruction, or loss of property resulting from an identifiable event that is:

• Sudden: Swift, not gradual or progressive; 
• Unexpected: Ordinarily unanticipated and unintended; or 
• Unusual: Not a day-to-day occurrence and that is not typical of the activity in which you were engaged.

Yep. I think the water heater blowing out counts.

In our case, insurance is covering the bulk of the repairs so we don't need to turn to Uncle Sam for help. But if you don't have coverage, or not much, you might be able to claim a loss on your tax return.

I hope you never have to do so. But it's always better to be prepared, since when a sudden, unintended or unusual event occurs, you have enough other stuff to worry about.

Related posts:

• Tax relief for disaster victims
• Insurance tips for storm victims
• Financial and tax tips for storm season
• Possible deduction for Chinese drywall

Pardon my household emergency

Blogging and other work-related duties will be delayed today as I deal with the aftermath of a leaking water heater.

Actually, exploding is more like it.

Making matters worse is that the damn thing is in our attic.

I know. That's apparently what the builders do here in the Austin area. Put things that can leak, like water heaters and A/C handler overflow pans, in the attic. Over rooms and clothes-filled closets.

Not a smart idea, guys. Not smart at all. I'd rather give up some garage space so that leaks happen in areas where they are not so problematic.

But no such luck.

The water heater let go while I was out taking my morning walk, which I had delayed a bit to let a shower pass.

When I returned home, it sounded like it was raining in my kitchen. And it was. Don't you just love irony? I used to.

After leaking through the attic floor, along an upstairs door frame and then into a first floor door frame, the water dripped through the first floor ceiling plaster and poured from light fixtures and an A/C vent onto our kitchen's hardwood flooring.

Lovely. Not.

Every towel we own is soaked, but at least a plumber is here assessing the damage and, I hope, soon replacing the dang thing. Then we'll deal with the insurance company and the water damages.

And, another hope, I'll get to wash the soaked towels and take a shower before the day is done.

Until then, I damply wait here in my home in Central Texas, where despite random rain showers, we're still suffering through a near-historic drought. And my house now has water damage.

Ain't life … interesting?

Photo of the water heater graveyard where my appliance will soon be
courtesy of iboy daniel & flickr creative commons

Possible deduction for Chinese drywall

Owning a home is the American pain. I mean dream. Wait, no. I mean pain.

Don't get me wrong. The hubby and I have been homeowners most of our married life. We bought a small condo in suburban Maryland soon after we were married and over the year bought and sold four other homes.

We loved each of our houses; still love the one we're in. But we also hated the upkeep and repairs that come with every home, including the one we're in.

Then there are the catastrophic cases where we've had to call on our property insurer for help, like back in the fall of 2004 when our Florida house was in the path of two hurricanes within three weeks. In these kind of disasters, homeowners also might be able to get some help from the IRS in th form of a casualty deduction.

Not an automatic write-off: There are, of course, some limitations to such tax help. Your tax break isn't a dollar-for-dollar write-off of your loss amount.

Regardless of whether your loss is from a major disaster, like a hurricane, or some other "run of the mill" incident (more on this in a minute), if you have insurance, you must take that into account. You have to subtract any coverage payments you receive from your loss amounts.

Then you do the calculations to see just how much of a deduction you can claim on your Form 1040 Schedule A.

The event that caused your loss also must meet certain IRS standards to be classified as a deductible loss. Specifically, the loss you incur must be from the complete or partial destruction of property resulting from a sudden, unexpected and unusual identifiable event.

What qualifies: Natural wear and tear on a property doesn't qualify. Taking care of things like damage to woodwork because you didn't paint as regularly as you should have is just one of the many, and sometimes expensive, joys of homeownership that you just have to cover all on your own.

But property loss from plenty of other unwelcome occurrences qualify, such as:

• Fires, either started by, for example, an electrical short or a lightning strike;

• Storms, such as tornadoes, ice, hurricanes and the like;

• Floods or, in some cases, droughts; and

• Earthquakes and mudslides.

Even burglaries, thefts and vandalism could get you some tax help from Uncle Sam.

And now, thanks to the involvement of four Congressmen, so might property losses caused by a type of imported drywall used in some U.S. homes.

Arguing for drywall damage deduction: Virginia's two U.S. Senators, Jim Webb and Mark Warner, along with their fellow Old Dominion State federal legislator Rep. Glenn Nye and U.S. Sen. Bill Nelson from Florida, say that thousands of their constituents have suffered costly property damage due to the dangerous effects of Chinese drywall used in their homes.

And these homeowners, some of whom have been forced to relocate and pay those costs in addition to the mortgages on their tainted houses, should be able to claim those associated losses as casualty tax deductions, argue the four Democratic lawmakers.

They made their case in a letter they sent last month to the IRS. Floyd Williams, national director of IRS Legislative Affairs, wrote back that the IRS might indeed allow such claims, depending upon the outcome of the investigations by some other federal agencies.

Drywall's unexpected damage: You may have seen the stories on the questionable drywall. The Chinese-made construction product reportedly emits putrid odors that have, based on consumer complaints, cause irritated and itchy eyes and skin, difficulty breathing, bloody noses and headaches.

The noxious fumes also are cited by homeowners with corroding their structures' pipes and electrical equipment, as well as damaging the workings of air conditioners and other appliances. A main fear here is that the corrosion could lead to fires.

The U.S. Consumer Product Safety Commission (CPSC) has received complaints about the questionable drywall from more than 600 property owners, mostly from residents of Florida, Louisiana and Virginia.

But property owners in Alabama, Arizona, California, Georgia, Indiana, Kentucky, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Tennessee, Texas, Washington, Wisconsin, Wyoming and the District of Columbia also have reported problems they say are associated with the Chinese-made drywall.

Lab results could mean tax deduction: In response to the complaints, the CPSC, Environmental Protection Agency (EPA) and other federal agencies are collecting samples of the drywall from affected homes. Lab analysis is expected to be completed my mid-September.

The results of these studies could prompt the IRS to allow casualty loss claims by the affected homeowners.

"If it is determined that Chinese-made drywall emits an unusual or severe concentration of chemical fumes that cause the extreme and unusual damage you [the Members of Congress] describe, affected taxpayers can qualify for a casualty loss deduction," wrote Williams.

"For those who have been affected by these harmful materials, this news will give them some financial relief," said Webb in announcing the IRS reply. "I look forward to hearing more from the U.S. Consumer Product Safety Commission on how to remedy this problem and prevent it from happening in the future."

More property loss deduction info: If you own a home and you suspect you have the allegedly tainted drywall, contact the CPSC if you haven't already. Then stay tuned for IRS word on whether it will let you the tax laws to help repair your property.

And anyone who's suffered an eligible casualty loss can check out the rules and how to get some when you file your tax return in this tax tip and story.

The IRS provides additional details in Publication 547, Casualties, Disasters and Thefts, as well as in Publication 2194, Disaster Losses Kit for Individuals.

And don't miss this post on Financial and tax tips for storm season.

Ice jam tax relief

I just had to blog about this, seeing as how here in Central Texas we're into our third straight week of near-or-hotter-than-100-degree temperatures. And summer just officially started on Sunday!

So any mention of ice, which we are going through by the bucket loads in our tea, is welcome.

Not so, however, for residents of Alaska.

In colder climes (I vaguely remember those), warming weather can create ice jams or, as they also are called, ice dams. These also begin with warming weather, when ice in rivers starts melting and breaking into pieces that float downstream, as shown in the photo below from the National Oceanic and Atmospheric Administration (NOAA). Simultaneously, water from melting snow flows into rivers, causing floods behind the ice blockage.

But those on the other side of the natural dam aren't out of danger. When the ice dams break up naturally as the ice continues to melt, the water that had been held back then rushes further downstream, causing flash floods in those areas.

Such was the case for many Alaskans this spring.

Now, says the IRS, those folks who suffered through flooding and other ice jam damage may qualify for tax relief.

Following flooding and ice jams on April 28, the president declared Alaska Gateway, Kuspuk, Yukon Flats and Yukon-Koyukuk regional educational attendance areas a federal disaster area. As a result, the IRS is postponing until June 29 certain taxpayer deadlines for those who live or own a business in the disaster area.

Similar tax relief is available to other victims of major disasters. The IRS keeps a running list of all tax relief due to major natural disasters.

Getting ready: The IRS also has issued its own guidance encouraging taxpayers to take tax-record precautions during the 2009 hurricane season.

Several of the IRS recommendations are identical to my suggestions in Hurricane season financial preparations -- make digital copies of important documents, create photographic records -- but the agency also addresses an issue that could affect a business struck by a disaster.

If you're an employer who uses a payroll service, the IRS says to ask that service if it has a fiduciary bond in place. The bond could protect you, the employer, in the event of default by the payroll service provider.

Just one more reason why I'm glad I'm a one-person operation!

Also remember that once you dig out of any disaster, you might be able to get some tax help from the IRS, either by filling a casualty loss deduction claim on next year's tax return or, in certain disaster situations, by filing an amended return to get the tax help sooner.

The IRS also notes that it has specialists available who are trained to handle disaster-related issues. You can reach them with a toll-free phone call to (866) 562-5227.

And the agency will provide you with copies or transcripts of your tax returns at no cost if you're located in a federal disaster area. If you haven't taken the storm prep precautions, you'll need that earlier tax paperwork to get storm-related tax help.

Hurricane season financial preparations

Hurricane season began yesterday. It will run through Nov. 30.

For the next six months, coastal residents will keep at least on eye on the Atlantic and tropics, just in case Mother Nature decides to get nasty this year.

We've been pretty lucky for the last few 'cane seasons. Forecasters think that our luck might hold.

As mentioned in an earlier item about storm-related state sales tax holidays, the National Oceanic and Atmospheric Administration announced last month that it expects the 2009 hurricane season to be "near normal," with nine to 14 named storms.

But, noted Dr. Gerry Bell, lead seasonal hurricane forecaster at NOAA's Climate Prediction Center, folks should not be lulled into a sense of false security. "Prepare for each and every season regardless of the seasonal outlook," said Bell. "Even a near- or below-normal season can produce landfalling hurricanes, and it only takes one landfalling storm to make it a bad season."

When the weather experts talk abort hurricane preparation, they mean installing shutters, stocking up on bottled water and shelf-stable food items (yes, I used to work for a grocery manufacturer) and making sure you have candles, flashlights (and batteries) and/or a generator.

Prepare financially, too: In addition to getting your home ready for hurricane season, you also need to be making some financial preparations now, too, well before any storm strikes.

Start with a large plastic box that has a sealable lid. If a storm does break a window or flood your home, you'll want to make sure your financial data is protected. Now for what goes in it.

Head to your bank's ATM for some cash. I know, a lot of folks can't spare any amount from their their accounts before they absolutely must have the money. In that case, put a note in your financial disaster kit reminding you that when a storm is imminent, you need to get some cash. You can't wait until the bad weather hits; any resulting power outages -- and with hurricanes they can last a while -- will mean you won't have access to your cash.

Also make sure you break up those $20 that the ATM spits out. Any businesses that are able to open after a storm aren't likely to be keen on making change.

Next on your financial storm prep list is a credit card. You'll want it to be a piece of plastic with a sufficient credit balance to see you through possible weeks of having to charge purchases.

Insurance inspection: Your storm-proof container also should become home during the storm season to copies of your insurance policies (health, home, auto), medical records, bank account numbers, Social Security card, and any other financial documents you have on hand.

What about the original documents? Put them in a safety deposit box or send the info to a trusted relative who lives outside the storm strike zone.

A further note about your insurance. Make sure your policies are up-to-date and in force, especially your homeowners policy. Most insurers will not let you make changes once a storm is rolling across the ocean en route to your house.

Is your property adequately covered? Have you made additions or improvements that need to be taken into account? What about your deductible? Is it at a level at which you are financially comfortable?

FiveCentNickel.com has a good discussion on hurricane season insurance issues. One of the coverages he discusses is flood insurance. You also can find more on that type of federally-issued policy in Time to prepare for Mother Nature's less maternal side.

Other types of data: If your financial information is stored on your computer, be sure to download it to a CD or flash drive and drop that into your disaster kit.

Also take photos, either Polaroids or digital, of your home, auto and other property before a storm hits. That will make claim filing easier and should help you answer any questions your insurance company might have.

Don't overlook your taxes: Also put copies of your tax records in your weather-proof bin.

Although taxes won't be on the top of your list after a catastrophe, remember that if you are in a presidentially declared disaster area, you have tax filing or return amending options that could get you some additional money, and more quickly, from Uncle Sam.

Such preparation is easier to do for hurricanes, since you typically get more advance notice of any impending storm. But regardless of where you live, you should have a financial disaster kit on hand in an easy-to-grab container (even a giant Baggie will work) that you can take to the safe place you head to as an escape from nature's fury.

Here's hoping you don't ever need to use the kit's contents. But unfortunately, truly terrible weather hits every part of the country (and world) year-round, so it truly pays to be prepared for any disaster well before it hits.

Last call for hurricane tax holidays

Louisiana and Virginia residents, this coming weekend is your last chance to buy hurricane season supplies and avoid paying state and local sales taxes on the products.

The Old Dominion's seven-day tax-free event began on the Memorial Day weekend, but it's winding down this coming weekend.

To help shoppers know what's eligible during the Hurricane Preparedness Sales Tax Holiday, the Virginia Department of Taxation produced a video featuring Phil Mousepower.

Mousepower is a hand puppet originally created as the tax department's mascot to promote online filing. He's branched out since then, as in the tax holiday video.

While Mousepower might seem to be geared for a younger, more carefree demographic, his hurricane prep message is decidedly serious. And the state's tax break on storm-related items is just a bonus on purchases coastal residents should be making in advance of the 2009 storm season.

So, Virginians, stock up by 11:59 p.m. May 31 and escape paying sales taxes. You can find more info at the state's special Web page and list of eligible items.

Louisiana tax holiday, too: Meanwhile, along the Gulf Coast, Louisiana is holding its annual state sales tax holiday for certain hurricane-preparedness items or supplies that are purchased the last Saturday and Sunday in May.

That means the Pelican State's 2009 sales tax holiday dates are May 30 and 31.

During the two-day holiday, tax-free purchases are allowed for the first $1,500 spent on such things as self-powered lights (flashlights and candles), radios, tarps,batteries (including those for cell phones) and generators.

That's $1,500 per item. Not a total shopping bill o f$1,500.

The Louisiana Department of Revenue has put together an announcement with more details on eligible storm-related purchases.

Hurricane season 2009 outlook: The official hurricane season runs from June 1 through Nov. 30.

Back in December, the annual prediction from forecasters in Fort Collins, Colo., -- yeah, I don't understand why guys in the Rocky Mountains are making calls on tropical systems either -- was that we should expect an above average 2009 season. It seems that's been the prediction for the last few years.

Thankfully, more data came in and things changed. The word now is that the season should be "near normal," with nine to 14 named storms.

That downgraded forecast is good for everyone. It also means that we should have plenty of cushion when it comes to storm monikers, starting with Ana and ending with Wanda, in the official 2009 Atlantic hurricane and tropical storm names list.

Full-price preparation: Even if you have to pay the sales tax, if you live in a potential strike zone, please go ahead and get ready now.

Yes, Floridians, I'm talking to you. For the second straight year, Sunshine State lawmakers have forgone the hurricane tax holiday in an effort to save some money.

You'll still need the supplies, though, if a storm or hurricane tears through your town. So don't be caught unprepared just because you had to pay a few extra dollars in taxes.

Financial and tax tips for storm season

Lightning is flashing and judging from the volume and how soon the subsequent thunder sounds, it's close. Too close.

So I'm about to shut down the PC. No need for it and/or me to get fried!

But since Central Texas has been in, variously over the last few hours, a thunderstorm watch, thunderstorm warning, tornado watch and now a flash flood warning, I wanted to take the opportunity to quickly offer a couple of disaster related tips.

Insurance issues: Check your homeowner's insurance policy. Make sure it's up to date; that is, your home is property covered. This post from last fall, Insurance tips for storm victims, has lots of good info and links.

Speaking of insurance, if you live in a flood-prone area, get a federal flood insurance policy. We had one in Florida, and back then when I watched water from the canal behind our house creep up our yard during hurricanes and tropical storms, I was very, very glad we made this extremely cost-effective policy purchase.

You can find more on federal flood insurance in my post Time to prepare for Mother Nature's less maternal side        .

Disaster kit time: Put together a financial disaster kit. Not just for your and your family's physical well-being, although that's a no-brainer, but also one to safeguard your finances. This post, Time to make disaster preparations, has some suggestions.

Claim your losses: If worse comes to worst and you do sustain damage from a natural disaster, remember that you might get some help from Uncle Sam.

If it's a major, presidentially-declared disaster, you can get help sooner to begin your recovery efforts. Even if it's, and pardon the phraseology, a run-of-the-mill disaster, you still might be able to claim any loss on your tax return and end up getting some money back from the IRS or at least owe less.

Details on disaster losses and the IRS can be found in Tax relief for disaster victims.

Yikes! Another nearby bolt! I'm outta here, or at least to the battery operated laptop.

Everyone take care! Disasters can hit in any location and at any time.

Flood victims get more time to file

The IRS says about 10 million taxpayers will ask for an extension to file their returns.

One group doesn't have to ask. The IRS is automatically giving them another month. But I bet they wish they weren't getting such favored treatment.

They are victims of the recent severe flooding in Minnesota and North Dakota. These taxpayers have an extra 30 days, until May 15, to file their 2008 federal tax returns and pay any taxes due.

The extension also applies to relief workers who don't live in the disaster areas but are there helping out with recovery efforts. But those Good Samaritans need to take an extra step: Call the IRS at 1-866-562-5227 and let the IRS know before they file or send in any tax payments. This will ensure their returns aren't flagged as filed late.

Most tax preparation software programs have a "disaster" option you can use when you file.

If you file a paper return, write "severe storms, flooding" at the top in red ink.

Affected areas: The storm damaged counties whose residents or workers are afforded an extra month to file include:

• Clay, Kittson, Marshall, Norman, Polk, Traverse and Wilkin in Minnesota and

• Adams, Barnes, Benson, Billings, Burleigh, Cass, Cavalier, Dickey, Dunn, Emmons, Foster, Grand Forks, Grant, Hettinger, Kidder, LaMoure, Logan, McIntosh, McKenzie, McLean, Mercer, Morton, Nelson, Oliver, Pembina, Ramsey, Ransom, Richland, Sargent, Sioux, Stark, Stutsman, Walsh, and Williams in North Dakota.Walsh, and Williams in North Dakota.

In addition, residents of the Standing Rock and Spirit Lake Indian reservations in North Dakota also get the extra month to file their federal returns.

State postponements, too: Both states also have made the same extra-month accommodation with regard to state tax filings.

Check out the revenue offices of North Dakota and Minnesota for details.

For the rest of us: If you just can't get your return completed by next Wednesday and you live anywhere else in the United States, you need to file Form 4868. This will get you six more months to get your paperwork into the IRS.

You can send it in via the U.S. Postal Service, postmarked April 15. The mailing address for each state is listed on the last page of the form's instructions, which are attached to the form itself.

Or you can e-file it sometime before midnight next Wednesday. Tax software programs have the form. If you're eligible to use Free File (had an adjusted gross income of $56,000 or less last year), check it out via the link on the IRS home page, www.IRS.gov.

Free File and fillable forms: If you made more than the Free File cutoff, you still can send in Form 4868 for free by using the new fillable forms option, which is part of the Free File program this year.

As I blogged about earlier, this isn't a computer software program, but a way to enter in information and figures that you calculate yourself. Folks who have simple returns or are used to doing their taxes by hand might find this method preferable this year.

But whichever way you choose to ask for more time, do so by April 15.

You still must pay: And I saved the best reminder for last. This is an extension to file your forms only.

When you do send in your extension request, you still must include a payment that is close to your eventual tax bill  -- the IRS would like at least 90 percent of that amount -- or you'll face penalty and interest charges.

Ike victims get Texas tax relief, too

Residents of and businesses located in 88 Texas counties that were declared disaster areas as a result of Hurricane Ike are eligible for certain state tax relief as they recover from the storm's devastation.

Since Texas has no individual income tax, most of the relief for residents comes via exemptions from state and local sales taxes.

Businesses are afforded similar sales tax relief, as well as some other specific tax considerations. Texas Comptroller Susan Combs noted that owners of businesses damaged by Hurricane Ike may postpone paying state taxes, if necessary, while they clean up wind and flood damage. They also may request extensions of up to 90 days to file state tax returns due in September and October.

The sales tax exemptions for Texas businesses and individuals include:

• The cost of labor to repair storm damage to non-residential property, including offices, stores and other commercial buildings. The cost of labor must be separately stated on the repair bill.  The state never imposes sales tax on labor for residential repairs.
• Services used to restore storm-damaged property, including dry cleaning of clothing and draperies; rug and carpet cleaning; furniture cleaning; and appliance repairs.
• Charges for cutting storm-damaged or downed trees. Charges to haul away trees and limbs are taxable, as are charges to haul away other storm debris.
• Certain charges related to mold remediation.
• Purchases made with vouchers or debit cards provided by FEMA, the Red Cross and the Salvation Army. Storm-related purchases made with cash donations or personal funds, however, still are subject to sales tax.

For evacuees taking shelter in hotels and motels, the Gov. Rick Perry has waived state and local hotel taxes through Sept. 21. Storm victims who remain in a hotel for 30 days or more may claim an exemption for their entire stay.

Additional details, including the list of affected counties, can be found in this Texas State Comptroller announcement regarding Hurricane Ike tax breaks.