Disasters such as storms, fires, floods, freezes, and hurricanes can damage or destroy vital business records.
You need accounting and tax records not only to file your taxes (including claims for casualty losses), but to file insurance claims, bill clients, pay bills, obtain loans, deal with federal and state audits, determine business cash flow and solvency, and otherwise continue in business.
And because you lost your business records in the fire, your prior tax returns and the one you’re about to file are in serious trouble, because the fire destroyed your proof. The IRS requires documentation for every deduction. Disasters do not change the documentation requirement.
Record reconstruction after a disaster may not be as hard as you think. It’s likely that much critical tax and financial data is already backed up online in the “cloud.” For example, your accounting software may perform online backups automatically without you even being aware of it.
Of course, not everything you need will be backed up online, particularly older items. Data on damaged or destroyed computer hard drives may be recoverable by experts.
To the extent you lack online backups, you’ll have to get copies of vital records from your bank, clients, and customers, landlord, insurer, and government agencies such as the IRS.
Tax Records
You may have electronic copies of your tax returns stored in the cloud, ready to download. Here at TaxMedics, we keep a copy of every Tax Return we have done and all the supporting documents uploaded by our clients. Just let us know and we can turn it on for you. If you didn’t use us, contact the tax professional who prepares your returns. He or she should have copies of the returns prepared on your behalf.
You can also get copies of your previous tax returns and transcripts from the IRS. IRS tax transcripts. IRS tax transcripts are not copies of your filed returns. Rather, they contain data from the key parts of the return. IRS transcripts are free, and you can get them anytime by using the IRS Get Transcript online tool; by postal mail with IRS Form 4506-T, Request for Transcript of Tax Return; by calling the IRS at 800-908-9946; or through the IRS2Go mobile phone app.
Documenting Business Casualty Losses
To claim a business casualty loss, you need to (1) know your damaged or destroyed property’s adjusted basis, and (2) determine its decline in value due to the casualty event. Your deductible business casualty loss is the lesser of the two, reduced by insurance recoveries.
After. The IRS recommends you document a disaster loss by taking photographs or videos as soon after the disaster as possible.
Before. Also, check mobile phones or other cameras for pictures and videos before the disaster occurred.
Takeaways
Here are five takeaways from this blog:
- Disasters can happen at any time. You’ll be most equipped for one if you’ve backed up and stored your most critical data online.
- To the extent you lack online backups, you’ll have to get copies of vital records from your bank, clients and customers, landlord, and insurer, and from government agencies.
- You can replace lost tax returns by contacting the IRS.
- The IRS recommends you document a disaster loss by taking photographs or videos as soon after the disaster as possible. Also, check smartphones or other cameras for pictures and videos from before the disaster occurred.
- To calculate your deductible casualty losses, use your tax and accounting records to document your business property’s adjusted basis
Be prepared for the next disaster. Back up and safely store online in the cloud your most critical data: major contracts and legal documents, tax returns and financial statements, and other critical business and customer documents.
If you have any questions or need my assistance, please call me on my direct line at 509-543-7600 or send a request HERE.
May 2021
This blog does not provide legal, financial, accounting, or tax advice. This blog provides practical information on the subject matter. The content on this blog is “as is” and carries no warranties. TaxMedics does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. Please contact us directly to discuss how this information may be used based on your actual facts and circumstances.