FINANCIAL PLANNING TIDBITS: 2024 TAX EXTENSIONS AND RELIEF OPTIONS FOR STORM-AFFECTED AREAS
SUMMARY
For taxpayers impacted by recent storms across the Southeastern United States, the IRS has extended key deadlines for filing and paying 2024 taxes and provides guidance for relief.
A HURRICANE SEASON FOR THE BOOKS
Between the unexpected flooding caused by Hurricane Debby, the historic surge and rain from Hurricane Helene, and the first-to-directly-hit-Sarasota-in-eighty-years Hurricane Milton, the South has certainly received more than its fair share of destruction this season. In response, the IRS is extending Tax Day deadlines for affected taxpayers.
NEW TAX FILING AND PAYMENT DEADLINE
Tax Day for 2024 falls on April 15, 2025. But given the recent challenges some families and businesses may have after the multiple hits from storms, the IRS has postponed the filing and payment deadlines for 2024 federal income taxes to May 1, 2025, for the entire states of Alabama, Florida, Georgia, North Carolina, and South Carolina, and parts of Tennessee and Virginia. The extension applies to individual tax returns for 2024, estimated tax payments due in January and April 2025, and business tax filings if the due dates fall within the affected period (August 1, 2024, to February 3, 2025). This additional time can make a real difference in managing the financial and administrative burdens caused by storm-related disruptions.
For more specific information about the IRS policies in a given state or year, you can visit their website at https://www.irs.gov/newsroom/tax-relief-in-disaster-situations.
CASUALTY LOSS TAX DEDUCTION
Those who have lost uninsured property or sustained unreimbursed property damage in the storms may be eligible for a casualty loss deduction. This deduction can be claimed on the current or prior-year tax return, and the election can be made up to October 15, 2025.
TAX-EXEMPT DISASTER RELIEF PAYMENTS
Financial support from federal and state disaster programs will play a critical role in helping the recovery. Thankfully, disaster relief payments from the government, even if given to individuals, are not taxable. This includes grants from FEMA, assistance for temporary housing, and funds for essential repairs not covered by insurance. If you receive or anticipate receiving any such disaster-related support, you generally won’t have to include these amounts in your gross income.
SPECIAL DISASTER DISTRIBUTIONS FROM RETIREMENT ACCOUNTS
Qualifying taxpayers can also take advantage of special disaster-related distributions from retirement accounts. Under current IRS rules for disaster-affected areas, individuals can withdraw funds from their IRAs, 401(k)s, or other retirement accounts without the typical penalties if they qualify under specific disaster distribution rules. While we generally suggest withdrawing funds from your retirement accounts for other purposes only as a last resort, disaster-related distributions can come in handy when all other options are exhausted.
If you do need access to retirement funds for disaster recovery, note that qualified distributions are not subject to the 10% early withdrawal penalty if you are younger than 59½. You can also spread the income tax liability from such a distribution over three years to minimize the immediate tax burden. Further, you have up to three years to repay the amount to your retirement account, similar to a rollover. This recontribution can prevent the distribution from being counted as taxable income, providing flexibility to restore retirement savings as circumstances improve.
To qualify for a disaster-related distribution, you’ll need to confirm that your county or state is designated as an IRS-eligible disaster area, and you may need to document your hardship. Many financial institutions provide guidance on qualifying, so consult with your plan administrator if you think you might need to access these funds.
OTHER CONSIDERATIONS AND DOCUMENTATION
If you’re filing for disaster relief extensions or accessing special disaster-related retirement distributions, keeping organized records is essential. Here are some tips to ensure you’re prepared to meet IRS requirements and maximize your relief benefits:
Track expenses and document losses: Disaster relief is typically designed to cover only specific types of damages or expenses not covered by insurance. Keep receipts, insurance claims, photos, and other documentation of storm-related damage and expenses. This can help you verify any hardship claims and avoid complications if the IRS requests documentation.
Notify your tax preparer: Many tax preparers are not automatically informed of their clients’ disaster area status. Communicate this to your accountant, especially if you plan to claim a disaster-related distribution or relief credit on your 2024 return. Your tax professional can help ensure all necessary forms and documentation are filed properly.
Stay informed on local relief options: In addition to federal relief, your state or local government may have further assistance programs, including tax deferrals, property tax relief, or additional grant programs.
Coordinate with your insurance provider: Florida’s Chief Financial Officer has issued a public warning about scam artists and urges people to work directly with their insurance companies before signing any contracts with contractors or remediation specialists.
If you or someone you advise is eligible for disaster relief and tax extensions, plan early and make use of these resources to safeguard your financial stability as you recover. As always, working with a tax advisor can help ensure you’re maximizing the tax benefits available to you during this challenging time. If you have any questions about your portfolio or need to coordinate with cash flow needs, please reach out to us.
Natalie G. Brown, CFP®
Director of Client Services & Financial Planning
Day Hagan Private Wealth
—Written 10.30.2024.
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