Why You Should Call Your CPA When Disaster Strikes

KayLeigh Stachowiak

When you find yourself in the middle of an unplanned crisis, the last thing you are probably thinking about is your current tax situation. However, if you have been impacted by a sudden unexpected disaster such as the recent flood in our community, it should be on your radar. When you have damage or a total loss of your home or personal property from an identifiable event that is sudden, unexpected or unusual you may be able to reduce your taxes in the year that the event occurred.

The tax deduction due to a casualty loss is claimed as an itemized deduction on Schedule A of your tax return. The loss is calculated based on the lesser of your adjusted basis in the property or the decrease in fair market value of the property as a result of the casualty. You must reduce the amount of the loss by any insurance or other reimbursement received for the loss. Once the total loss is calculated, there is a $100 reduction to the loss and a second reduction equal to 10 percent of your adjusted gross income in the year of the loss. Contact your Yeo & Yeo tax professional for help in tax planning and assessing if there is a potential for tax savings due to the loss.

If you believe you have incurred a substantial loss and plan to claim the loss on your tax return, you will need documentation to support your claim. That information is going to be easier to gather as you assess damages and document the loss in the present-day rather than next year as you scramble to pull together all of your tax documents. The documentation required to substantiate your loss would be similar to the items needed to make an insurance claim. Some examples would include photos with a time and date stamp, an itemized list of the items lost along with their purchase price and current value, and invoices paid to contractors or restoration companies.

Being aware of the tax impact and thinking proactively could save you tax dollars and reduce the amount of loss incurred. Planning now could prevent another disaster during tax time.

KayLeigh Stachowiak

KayLeigh Stachowiak

CPA

KayLeigh R. Stachowiak, CPA, provides business consulting services, and tax planning and preparation services for Yeo & Yeo’s individual and business clients. She is a Senior Accountant and serves in the firm’s Midland office. Contact KayLeigh via email at kaysta@yeoandyeo.com or 989.631-6060.