Income
Tax and Hurricane Disaster
by Vic
Bilson
In recent years, the United States has experienced
major disasters as a result of hurricanes devastating parts of the country.
Many of the hurricane survivors have been jobless, homeless and impacted in so
many ways by these disasters that special tax relief and assistance has been
extended to those who were impacted by the untamed wrath of storms with
damaging winds. Hurricanes Katrina, Wilma and Rita showed no mercy as they left
lives in ruins. The states involved include Alabama, Florida, Louisiana,
Mississippi and Texas.
If you were affected by hurricane Katrina, Rita or
Wilma, then several tax breaks are available to you. They are now summarized in
a brand new IRS Publication, #4492 that you download at
www.IRS.gov.
The area of the Gulf Coast of the United States is
covered under the Gulf Opportunity Zone Act of 2005 which expands emergency tax
relief to those people who experienced impacts from these three hurricanes. The
tax laws are altered to help those who experience losses, in some cases
everything they owned and held dear. This act also made it more beneficial, in
terms of income taxes, for individuals and corporations to help with the
charity efforts to assist those who suffered as a result of the devastation.
One of the tax benefits made available to these
hurricane survivors is the fact that tax penalties for early distributions and
loans from retirement account have been changed. The limitation on deduction of
losses has been eliminated and earned income tax credits as well as refundable
child tax credits have been altered to be more beneficial.
In the past, in the event of a casualty or theft
loss, a taxpayer had to reduce the loss by $100 AND reduce the loss by 10% of
their adjusted income. Only that amount over these limitations was deducted
from their income. Because of the recent hurricanes, these limits have been
lifted and the entire amount that will not be reimbursed by insurance can be a
valid tax deduction. Specific dates of the losses and other restrictions apply,
but you can find all the details about this change by searching the
Internet.
In past cases, if a debt was cancelled it was still
to be considered taxable income. For those living in the area devastated by
Hurricane Katrina on August 25, 2005, any debts that are cancelled due to the
circumstances are not considered to be taxable income, giving many people a
slight break in taxes due. And these people need as many breaks as possible.
For anyone who lived in the Gulf Opportunity Zone on
the date of hurricane landfall of any of these three major hurricanes and were
displaced because of the disaster, these taxpayers may choose to use the earned
income tax credit or refundable child tax credit amounts from the previous
year's federal income tax return instead of using the actual figures from the
2005 earnings year.
For those who had to access and use their individual
retirement account or obtain loans against those accounts to survive the
post-hurricane devastation, tax breaks have been established. Provided the
disbursement of funds was after the date of landfall in that person's area of
residence, the 10% tax penalty on early distribution is waived up to the first
$100,000 taken from the account. Instead of including these funds in income
spread over three years, the funds are treated as if they had been placed into
a roll-over account, incurring no taxes.
Because tax issues are so complex and so important,
if you believe you fall into the geographically areas included in the Gulf
Opportunity Zone Act, you should contact someone who is an expert at income tax
preparation and learn how much you can save on your taxes as a result of the
terrible experiences of the past year.
About the Author: Vic Bilson is a home-based
Internet entrepreneur that has been helping people reduce their taxes through
home business ownership. Visit:
Financial Freedom
Society
