Disaster Relief and Your Tax Return

As a nation, hurricanes and their aftermath are making headlines right now.  First Hurricane Harvey affected 13 million people from Texas, Louisiana, Mississippi, Tennessee, and Kentucky.  Now Hurricane Irma’s career path brings another threat to people and property across Florida, Georgia, Alabama, and again, Tennessee.  Emergency Relief Fund

As of September 9, 2017, Hurricane Harvey has damaged over 200,000 homes, displaced over 37,000 people, and over 500,000 people have applied for disaster assistance with the Federal Emergency Management Agency (FEMA).  FEMA has already paid out over $150 million dollars to Harvey victims alone, but is projected to cost as much as $180 million dollars.  As of September 9th, the U.S. Virgin Islands, Puerto Rico, and Florida already had federal emergency declarations allowing for federal funding to be made available for affected individuals and local governments.

Now for some good news…according to the Internal Revenue Service, “qualified disaster” relief payments to cover personal, family, and living expenses made to individuals are not included in any taxable income.  Furthermore, disaster relief payments are not subject to income tax, self-employment tax, or social security, Medicare, and federal unemployment taxes.    Specifically, the IRS statement on the taxability of disaster grants instructs taxpayers not to “include post-disaster relief grants received under the disaster relief and emergency assistance act in your income if the grant payments are made to help you meet necessary expenses or serious needs for medical, dental, housing, personal property, transportation, or funeral expenses.”

According to the IRS, qualified disaster relief payments include payments you receive (regardless of the source) for the following expenses:

– Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a presidentially declared disaster.

– Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a presidentially declared disaster. A personal residence can be a rented residence or one you own.

– Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a presidentially declared disaster.

– Qualified disaster relief payments also include amounts paid to those affected by the disaster by a federal, state, or local government in connection with a presidentially declared disaster.

For more information on IRS Emergency Relief, see the below link: https://www.irs.gov/businesses/small-businesses-self-employed/disaster-assistance-and-emergency-relief-for-individuals-and-businesses-1

crowdfundingAnother avenue for financial relief made popular via the digital wildfire of social media are personal fundraising and online donation websites such as GoFundMe, Crowdfunding, or YouCaring.  In fact, since launching in 2010, GoFundMe alone has raised over $3 billion dollars for a variety of personal campaigns.  For Hurricane Harvey victims specifically, more than $778,000 dollars has been raised in 13 days online.

“Crowdfunding” by definition –

Noun: The practicing of funding a venture by raising many small amounts of money from a large number of people, typically via the internet.

What taxpayers need to know about this alternate system of raising funds is that there may be some unfavorable tax implications for not ensuring the difference between non-taxable gifts vs. taxable income.  For campaigns totaling at least $20,000 dollars and 200 transactions, the crowdfunding service provider has to report it to IRS.  Ideally, a single donation made without anything expected in return is considered a gift, up to an individual transaction limit of $14,000 dollars, and is unlikely to pose any tax implications.  Additionally, the IRS often postpones certain deadlines for taxpayers who reside or have business operations in the covered disaster area and have the option of claiming disaster-related casualty losses on their federal income tax return.  

Hopefully the likelihood of additional storms will dwindle as we drift out of “hurricane season” and into the “holiday season”.  In the meantime, the most important thing for people in the affected areas is that there are options for relief.  

– Susan Amsler
– September 10, 2017

Randolph Business Resources, LLC.
Our experienced staff are ready to lend a hand to you and your business.
Visit us @ www.randolphacctg.com
Call us at: (615)202-5829 if you need immediate assistance

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