Managing the Tax and Insurance Aftermath of Hurricane Sandy
November 8, 2012
Handy Tips Can Help Individuals and Businesses
Hurricane Sandy wreaked havoc on the lives of thousands in the tri-state area. Clearly, the immediate need is food, shelter and medical care. But in the weeks to come, individuals and businesses will be faced with a variety of financial ramifications from the storm. New Jersey Society of CPAs members offer a few helpful tips.
Tax Issues
According to Gail Rosen, CPA, principal at Gail Rosen, CPA, P.C. in Martinsville: Taxpayers impacted by the storm in specified counties in NJ, NY and CT have been granted an extension on their tax filings and payments. Any affected individuals and businesses have until February 1, 2013, to file fourth quarter individual estimated tax payments, payroll and excise tax returns, payment for the third and fourth quarters, and nonprofit organizations filing Form 990 with an original or extended deadline falling during this period. Additionally, the IRS is waiving failure-to-deposit penalties for late federal payroll and excise tax deposits, as long as they are made by November 26, 2012.
Casualty Losses
Rosen adds: Losses for your personal-use property are potentially deductible. This deduction is limited to taxpayers who itemize their deductions. If you have filed a claim for reimbursement, no portion of the loss is deductible until the claim is resolved. A casualty loss deduction is allowable only for the amount of the loss that exceeds $100 per casualty. Also, the net amount of all of a taxpayer's casualty losses is allowable only for the amount of the losses that exceed 10 percent of adjusted gross income (AGI) for the year.
The amount of your casualty loss is determined by the decrease in fair market value (FMV) of the property as a result of the casualty, limited to the taxpayer's adjusted basis in the property.
You can claim the loss this year or in 2011. Taking the loss via the filing of an amended 2011 income tax return may increase your tax savings and/or you may get your refund earlier than waiting to file your 2012 income tax return next year. You will need a description of the property, the cost basis and the FMV before and after the casualty.
Business Losses
Casualty losses on business property are computed in the same manner as personal property, except that the $100 deduction and 10-percent AGI limit do not apply, notes Rosen.
Insurance Issues
According to Paul Peterson, managing partner at Wiss & Company, LLP, in Livingston: Find your policy and read it carefully. Direct storm damage is typically covered and most policies also include business interruption insurance. However, special deductibles may apply and the business interruption insurance for lost income will not apply unless there is actual physical damage to the building. So, businesses that shut down due to power outage or evacuation orders may not qualify.
Some commercial policies provide some levels of flood coverage, but most exclude it, in which case the policy will only cover loss and damage caused by wind. Typically, water that comes up from the ground is generally considered a flood and is covered only by the National Flood Insurance Program, whereas water that comes down from the sky would typically be covered by a business property policy. Many policies now contain anti-concurrent causation clauses, which state that if damage is caused by both a covered loss (wind) and a non-covered loss (flood), the policy may exclude all damage.
Supplemental Coverage Provisions
Contingent business interruption coverage – Compensates for lost revenue when a business did not suffer property damage, but experienced a slowdown/shut down because an affiliate’s facilities or equipment was damaged,
Services interruption/off premises power coverage – Covers losses due to an interruption of a utility service due to utility company damage.
Civil authority coverage – Covers losses when access to property is restricted by government action (e.g., mandatory evacuation).
Ingress/egress coverage – Covers losses when property entry/exit is impaired.
Extended period of indemnity – Damage recovery for a certain period after a business reopens.
Peterson adds, many policies have a waiting period, meaning only business losses incurred during a certain period of time following the event would be covered. He also suggests that you:
Take pictures and/or videos – Capture all evidence that can support your claim. If your business stopped operating because of something up the street, such as a building collapse or downed power lines, take photos of that.
Make a detailed list of damaged/lost property – Include the original cost, date of purchase, estimated replacement cost and date of loss.
Secure your property, but don’t make major repairs – Many policies include stipulations that if you do not take necessary steps to protect your property and further damage is incurred, you may not be covered for the additional damage. But hold off on making permanent repairs until the insurance adjuster has done an inspection; get a couple of your own repair estimates.
Organize copies of financial data – Obtain copies of canceled checks, invoices, receipts, copies of your financial statement/profit and loss statement, wages paid, tax returns, sales tax returns, inventory records, sales records, production records, bank statements, payroll records, and other papers that will assist the adjuster in assessing the value of the destroyed property. Include expenses that continue during the time your business is closed such as utility and advertising costs, temporary office costs, overtime pay, price premiums and extra shipping.
Give notice quickly and keep track of all contact – Contact your insurance company and file a claim as soon as possible. Some policies have very narrow time limits for filing claims. Keep track of all contacts you have with your insurance company, including the names, contact information and notes from the conversation.
