For many victims of Hurricane Sandy, filing tax returns is probably not on the top of their to-do list, with hundreds still out of their homes, and for many of those who are living in their residences, still in the process of fixing them.
But once those W-2s and W-4s come and 1040s get picked up, Sandy’s stressed survivors have another headache to contend with:
How do I handle my hurricane losses in my tax returns?
This question is even new to the accountants who are handling the returns of many storm victims. For CPA Robert Eierman of Eierman & Schulken Associates, Inc., an accounting office in Howard Beach, it’s been a learning experience. “I had to learn everything I needed to know for this,” he said.
Sitting at his desk in his office near Coleman Square, Eierman notes that Sandy has even affected him personally. The water line from the storm surge is still faintly visible on the walls of his office, which was destroyed in Sandy. Noting that he had to work overtime to get his office back together by the time tax season began in early January, Eierman said from his view, many Sandy survivors have not yet thought about tax returns.
“I don’t think a lot of people are ready to think about taxes yet,” he said.
One reason, Eierman said, is that many residents are still waiting for checks from insurance companies and they would need a check to declare the losses on their tax returns. He was trying to make people aware that their tax returns can be amended after April 15 if certain information is not known for sure by the time returns are filed.
“For many, it is impossible to tell what the losses will ultimately be. You can always amend your returns or ask for an extension,” Eierman explained, adding that 2011 returns can also be amended to include disaster losses. “In federal disaster areas, you can carry it back a year.”
Typically, the federal government will waive the “10 percent rule,” under which you would deduct 10 percent of your income, as well as $100, from your disaster loss to determine how much of it can be deducted — after certain disasters, but that has not been done after Sandy. An amendment to waive the 10 percent rule was introduced as part of the Sandy aid bill last year, but died in committee in the House of Representatives in December and has not been considered by the new Congress.
Eierman strongly suggests that victims document every loss, including obtaining quotes from contractors for necessary replacements and keep proof of the “blue book” value for automobiles that were lost in the storm. He also encourages residents to keep pictures and videos of damage and contents in the home which may have been lost in the storm. He suggests keeping an itemized list of one’s property, keeping receipts — especially for items bought related to Hurricane Sandy and for any cleaning or repairs that were done to the home — and keeping cancelled checks, credit card statements and other proof of cost.
“You will need to provide proof of everything for the IRS,” Eierman said.
He further suggests Sandy victims who typically do their own taxes and are not sure how to navigate the tax code with disaster losses get them done professionally this year.
Eierman said he has been seeing new clients since the storm who have come to ask questions on what they should do.
In the meantime, the Internal Revenue Service had special workshops through the month of February in LeFrak City to help people understand how Sandy would affect their taxes. Sen. Chuck Schumer (D-New York) sent a letter to IRS Commissioner Douglas Schulman asking him to open help centers in hard-hit areas like the Rockaways in order to help more victims one-on-one.
“Home and business owners impacted by Sandy can get some relief through the tax code, but far too few actually know how,” Schumer said. “The IRS has the right idea in providing these services at their taxpayer assistance centers, but these services should be located in the hardest hit neighborhoods to maximize the benefit.”