Home » FOCUS » Federal tax relief act lessens anxiety for Katrina’s victims

Federal tax relief act lessens anxiety for Katrina’s victims

A new year has dawned and that means the taxman cometh. All who must file business and individual returns with the Internal Revenue Service look for relief. That search for every possible exemption is magnified for Mississippi residents who in 2005 endured the worst natural disaster in the nation’s history. Those citizens are looking for ways to spell relief with extensions, changes and exceptions.

According to Gulfport accountant Germaine Giani Weldon, the answer has arrived.

“We need a break,” she said. “That break came to us in the form of the Katrina Emergency Tax Relief Act of 2005, which will help businesses as well as individuals. Because our area is a presidential-declared disaster area, we are subject to many tax advantages that are not normally available. This act kicks it up a notch to help us rebuild our area faster.”

The new act extends the deadline for tax filing and payments for businesses and individuals until February 28, 2006. Weldon, a CPA and certified financial planner with Alexander, Van Loon, Sloan, Levens and Favre, says this extension includes the following:

• personal quarterly estimates

• corporate, partnership and personal
extensions that were due in September
and October

• quarterly federal and excise tax returns

• estate and gift taxes

• employment taxes

“Penalties and interest for late filing and late payments will not be charged for the period from the storm until the February deadline,” she added. “The Mississippi Tax Commission will also follow the extension guidelines established by the federal government, but this will not include sales tax. The ability to defer these payments and filings frees up business owners to devote more time and energy to apply for FEMA and low-interest Small Business Administration loans, which can be very time consuming.”

Tracking down records

Bay St. Louis CPA Chuck Benvenutti is pleased with the extension for filing. He still has 2004 returns to do for professionals who lost all their records and are trying to find them. “We’re trying to find where they are and will do about 800 returns,” he said.

He and other accountants are keeping up with tax changes daily by attending seminars, studying online and subscribing to publications.

Benvenutti and Weldon agree that the provision for taking casualty losses is a big change in the Katrina Relief Act. For individuals that means the difference in insurance payments and the cost to repair homes, along with the home contents’ loss, can be listed as casualty losses on an amended or extended 2004 return or the 2005 return. The filer can make the choice of which year to claim the loss, but Weldon says filing it on the 2004 return gives taxpayers the opportunity to get cash faster.

“Taxpayers will want to weigh which option works best for them in taking their casualty losses,” she said. “A business owner who earns less money in 2005 because of business interruptions due to Katrina could end up in a lower tax bracket in 2005 than in 2004. In that case, it may be to the taxpayer’s advantage to take the loss on the 2004 return, the higher tax bracket year, and then get a larger tax refund.”

Benvenutti says the new tax act means more work for preparers but he feels area residents and businesses deserve the provisions. “They’ve tweaked the code to give Katrina people more ways to get help,” Benvenutti said. “Many people will get refunds who usually don’t get them. With enough losses, an individual won’t pay any tax and will get a refund.”

Weldon says the new act also waives the 10% limit and the $100 subtraction usually required for casualty losses. “This gives taxpayers the ability to deduct more of the casualty loss off their taxes and aids small business owners by putting more cash in their pockets faster,” she said. “Normally when an individual taxpayer has a casualty loss, they must first subtract $100 per casualty event and then deduct only the amount that exceeds 10% of their adjusted gross income.”

More time

Business owners and individuals will also be granted more time to replace business property and personal residences that have been destroyed. This act extends the time to five years that they have to replace their property with the insurance reimbursement. The property must be located in the disaster area to qualify.

“This means people in the disaster area will not have to worry about recognizing a gain from the insurance proceeds,” Weldon said.

She said the act also encourages businesses that cannot operate due to hurricane damage to continue paying their employees by providing a tax credit. The credit is 40% of the first $6,000 in wages paid to eligible employees.

“Trying to make phone calls, locate employees, find working fax machines or waiting for a delivery service can make doing business extremely difficult,” she added.

“Combine that with trying to get your family settled it can make you want to pull your hair out — if you haven’t already done that. Getting a few breaks from the government may be just what we need to focus on all the tasks required to open our doors again.”

Contact MBJ contributing Lynn Lofton at mbj@msbusiness.com.

About Lynn Lofton

Leave a Reply

Your email address will not be published. Required fields are marked *