It's confusing to try to figure out what you can claim on your business taxes for casualty losses. CPA Gail Rosen clarifies and provides information that might help you lower your business taxes or get a refund sooner:
Storm Loss Rules for Business Casualty Losses
Losses for your business property (including furniture and fixtures, equipment, and vehicles) are deductible because the storm was a natural disaster. If you have filed a claim for reimbursement (from insurance or otherwise) for which there is a reasonable prospect of recovery, no portion of the loss is deductible until the claim is resolved.
Generally, 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 your adjusted cost basis in the property.
When to Take the Deduction
Since these casualty losses resulted from a federally declared disaster, you can claim the loss this year or in 2011 (the year before the loss was incurred). You should discuss the options with your CPA, as taking the loss may increase your tax savings and/or you may get your refund earlier than waiting to file your 2012 tax return.
Information needed to Claim the Loss
- Description of the property (or properties)
- The adjusted cost basis
- The FMV before and after the casualty
Not every casualty results in a loss for tax purposes, and in some cases, you may have a "casualty gain." For instance, suppose you purchased equipment for $100,000 and after a few years of taking accelerated depreciation your tax basis is now $30,000. Assuming the value before the storm was $50,000 and the equipment is destroyed. If you receive $50,000 in insurance, you will have a gain of $20,000, which is the $50,000 insurance less your cost basis of $30,000. In certain cases, tax on a casualty gain can be avoided or deferred.
Read more about how to recover from a business disaster
Gail Rosen, CPA is the owner of a well-respected boutique accounting firm in Martinsville, NJ that has been serving individual and business clients for over 27 years. In addition to tax preparation, the firm specializes in assisting business start-ups in understanding their tax responsibilities and what deductions they are entitled to. You can email her at firstname.lastname@example.org.
Disclaimer: The information in this article and on this Guide Site are for general information purposes only; it is not intended to be tax or legal advice. Consult your CPA or attorney to discuss your specific business questions.