Claiming Casualty & Theft Losses on Return

Mar 12, 2023

Natural disasters, thefts, and other unexpected events can cause significant financial losses for individuals and businesses. Fortunately, the IRS has provided some relief through tax deductions for designated damages. However, there are specific criteria that must be met in order to claim these deductions along with specifications for reporting them on your return. Here are some of the most common questions and answers to claiming casualty & theft losses on your return.

How do I know if my loss qualifies?
You can only deduct casualty and theft losses if they’re directly the result of an event that’s a federally declared disaster. Meaning, the President of the United States has officially declared the event a disaster. Federal disasters are often declared for areas heavily impacted by hurricanes, tornadoes, or floods. To view all federally declared disasters and related information, visit the IRS website.

There are 3 types of deductible losses allowed under the umbrella of federally declared disasters:

1. Federal casualty loss: The loss of personal use property due to a federally declared disaster. The loss must have occurred in the state receiving the disaster declaration.

2. Disaster loss: The loss of personal use or business property resulting from a federally declared disaster that occurred in a county eligible for public or individual assistance, or both.

3. Qualified disaster loss: The loss of personal use property due to a disaster declared under Section 401 of the Stafford Act, or several specific natural disasters or time periods.

Do theft losses qualify for deductions?
The IRS defines theft as the act of taking or removing property with the intention of depriving the owner of it. The act must also be illegal under state law. But as with the case of a casualty claim, the theft must have occurred due to a presidential disaster area declaration. For example, your city is struck by a tornado and the President declares it a disaster area. Subsequently, a thief accesses your home through a window broken by the storm and steals your car. One could argue the loss of the car was from theft due to a disaster.

Can I deduct a loss covered by insurance?
No, you cannot deduct casualty and theft losses covered by insurance, unless you file a timely claim for reimbursement and you reduce the loss by the amount of any reimbursement or expected reimbursement. For more information, please review IRS Publication 547.

How do I calculate my loss?
Personal casualty and theft losses attributable to a federally declared disaster are subject to the $100 per casualty and 10% of your adjusted gross income (AGI) limitations unless they are attributable to a qualified disaster loss. Personal casualty and theft losses attributable to a qualified disaster loss are not subject to the 10% of the AGI limit and the $100 limit is increased to $500. An exception to the rule above, limiting the personal casualty and theft loss deduction to losses attributable to a federally declared disaster, applies if you have personal casualty gains for the tax year.

What form do I use to claim this deduction?
Casualty and theft losses are first reported and calculated on Form 4684. You will then report them on Form 1040, Schedule A.

Can I itemize this deduction?
For tax years 2018 through 2025, you can no longer claim casualty and theft losses on personal property as itemized deductions, unless your claim is caused by a federally declared disaster.

For tax years 2018 through 2025, personal casualty and theft losses may be deductible when: they are attributable to a federal disaster. For tax years beginning before 2018 and after 2025 personal casualty and theft losses may be deductible even if they are not attributable to a federal disaster.

In conclusion, claiming casualty and theft losses on your tax return can provide some relief for individuals and businesses that have suffered unexpected financial losses. It’s important to remember that only losses directly resulting from federally declared disasters are eligible for deduction. As with any tax-related issue, it’s always best to consult with your WVC tax professional to ensure that you are following the appropriate guidelines and maximizing your deductions.

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Categories: Tax Planning

Best Practices for Scanning Tax Documents With A Mobile Device

Mar 02, 2023

Every year, tax season requires clients to share large amounts of data – mostly in the form of paper documents. As technology has evolved, so have the ways in which we share and collect personal files. The use of electronic document exchange software has become the standard for most accounting firms as it is quick and easy.

While most people don’t have a personal document scanner, almost everyone has a mobile device. This year we wanted to share best practices for scanning your tax documents so they are legible and compatible with our tax preparation software.

Image Files (.jpg, .png, .tiff, etc.) are not the best option
Many times, we receive documents as pictures or images which have been taken utilizing the camera app on your mobile device or tablet. Typically, photo/image file types utilize compression to reduce the size of the file for ease of upload. However, this compression results in a loss of quality, which ultimately makes the file harder to read. Instead, you can use your same mobile device or tablet to scan and submit documents in a PDF format! See below for tips!

Why are PDF files optimum?
When you create a PDF file containing data such as paragraphs, images, numbers, graphs, tables, etc., it will always display that data in the exact same way no matter where you are viewing it. PDF files also have universal compatibility meaning most modern browsers are fully capable of opening and displaying PDF files, and most modern operating systems come with basic pre-installed apps to open PDFs with ease.

Tips for creating PDF files
We have provided some resources below for your convenience. You can also do an internet search for your exact phone model for additional scanning options as well as where to find support for scanning from a mobile device.

Finally, as you’re working to prepare your tax records for the current filing season, take the time to connect with your tax professional to avoid any surprises and to ensure you have all the necessary documents to meet your filing deadlines. We do not require our clients to send documents electronically, you can still provide your files to us directly in paper form. We will provide you with your original documents when we complete your tax return but we always encourage you to make a copy of your files for safekeeping.

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Categories: Tax Planning

USDA Revenue Loss Assistance Programs For Agricultural Producers

Feb 07, 2023

At the end of last year, the U.S. Department of Agriculture (USDA) announced its plan to launch the Emergency Relief Program (ERP) Phase Two, as well as the new Pandemic Assistance Revenue Program (PARP). These two disaster programs were developed to help offset crop and revenue losses for agricultural producers. Just last month, the USDA announced its Farm Service Agency (FSA) is now accepting applications for both of these programs through June 2, 2023. Below are some of the key details to know before applying. For a full listing of all the guidance and qualifications, visit the USDA’s website.

Emergency Relief Program (ERP) Phase Two

  • ERP Phase Two is for producers who didn’t receive assistance from ERP Phase One.
  • Eligibility for assistance through this program is based on revenue losses experienced from eligible natural disasters in 2020 and 2021.
  • Producers should begin reviewing the following documents in preparation for applying for ERP Phase Two:
    • Schedule F (Form 1040)
    • Profit or Loss from Farming (or similar tax documents for tax years 2018-2022, representing their applicable Benchmark Year and Tax Year for Disaster Year Revenue)

Pandemic Assistance Revenue Program (PARP)

  • PARP provides financial assistance for producers who suffered at least a 15% decrease in allowable gross revenue for the 2020 calendar year, as compared to 2018 or 2019.
  • Producers may be eligible for assistance through PARP for a range of agricultural commodities and allowable gross revenue sources.
  • Other notable eligibility requirements include:
    • Must be a citizen of the United States, a resident alien, a partnership or organization structure organized under state law, an Indian Tribe or Tribal organization, or an eligible foreign person or foreign entity
    • Have an average adjusted gross income (AGI) of less than $900,000 for tax years 2016, 2017, and 2018
    • Comply with provisions of the “Highly Erodible Land and Wetland Conservation” regulations, often called the conservation compliance provisions.
    • Submit a complete PARP application form (FSA-1122) and provide all required documentation.

Next Steps:

Applications for each program are due June 2, 2023. Producers can apply for both programs during the same appointment with USDA’s Farm Service Agency (FSA).

For more information, producers should contact their local USDA service center or reference the ERP Phase Two-PARP Comparison Fact Sheet.


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Jeffery Long, CPA
Partner

Categories: Agribusiness

Deadline Extended For ApprenticeOhio Training Grants Until The End Of March

Jan 17, 2023

In September of last year, Ohio Governor, Mike DeWine, announced training reimbursement grants being made available to ApprenticeOhio sponsors and employers as a result of a federal Building State Capacity to Expand Apprenticeship through Innovation grant that Ohio Department of Job and Family Services (ODJFS) received in 2020.

Sponsors and employers can apply for the grants at Apprentice.Ohio.gov, receiving reimbursement of up to $2,500 per apprentice for up to 10 apprentices to help cover the costs of training and tool allowances.

The applications for reimbursement of costs incurred since July 1, 2022, were originally due by Dec. 31, 2022, but the deadline has been extended until March 31, 2023. According to ODJFS Director, Matt Damschroder, “the program has received 100 applications so far and approved nearly half of them, paying out nearly $900,000.”

To learn more and to apply, visit https://apprentice.ohio.gov/

Categories: Construction & Real Estate, Manufacturing & Distribution, Tax Planning

Proposed Regulations Address Foreign Tax Credit Rules

Dec 27, 2022

The IRS has recently issued proposed regulations relating to the foreign tax credit covering:

  • Guidance on the reattribution asset rule for purposes of allocating and apportioning foreign taxes
  • The cost recovery requirement
  • The attribution rule for withholding tax on royalty payments

Reattribution Asset Rule

The 2022 foreign tax credit final regulations provide rules for allocating and apportioning foreign income tax arising from a disregarded payment. Foreign gross income included by reason of the receipt of a disregarded payment has no corresponding U.S. item because Federal income tax law does not give effect to the payment as a receipt of gross income. The new proposed rules therefore characterize the disregarded payment under Federal income tax law for purposes of assigning this foreign gross income to the statutory and residual groupings.

These rules treat the portion of a disregarded payment, if any, that causes U.S. gross income of the payor taxable unit to be reattributed as a “reattribution payment” under either the rules for gross income attributable to a foreign branch in the case of a taxpayer that is an individual or domestic corporation; or the rules for gross income attributable to a tested unit in the case of a taxpayer that is a foreign corporation. The excess of a disregarded payment over the portion that is a reattribution payment is treated either as a contribution from one taxable unit to another taxable unit owned by the first taxable unit, or as a remittance of a taxable unit’s current and accumulated earnings.

Cost Recovery Requirement

Under the cost recovery requirement, the base of a foreign tax permits the recovery of significant costs and expenses attributable, under reasonable principles, to the gross receipts included in the tax base. The proposed regulations provide additional guidance with respect to whether the test is met in certain cases where foreign tax law contains a disallowance or other limitation on the recovery of a particular cost or expense that may not reflect a specific principle underlying a particular disallowance in the Code. The proposed regulations also provide that the relevant foreign tax law need only permit recovery of substantially all significant cost or expense, based on the terms of the foreign law. A safe harbor is provided for applying the requirement.

Attribution Requirement for Royalty Payments

The attribution requirement allows a credit for foreign tax only if the country imposing the tax has a sufficient nexus to the taxpayer’s activities or investment in capital. Under the source-based attribution requirement, a foreign tax imposed on the nonresident’s income on the basis of source meets the attribution requirement only if the foreign tax sourcing rules are reasonably similar to the U.S. sourcing rules. With respect to royalties, foreign tax law must source royalties based on the place of use of, or the right to use, the intangible property, consistent with how the Code sources royalty income.

The proposed regulations provide an exception (the single-country exception) to the source-based attribution requirement if a taxpayer can substantiate that the payment on which the royalty withholding tax is imposed was made pursuant to an agreement that limits the right to use intangible property to the jurisdiction imposing the tested foreign tax. The exception applies only when the taxpayer has a written license agreement that meets certain requirements.

The proposed regulations also modify the separate levy rule to provide that a withholding tax that is imposed on a royalty payment made to a nonresident pursuant to a single-country license is treated as a separate levy from a withholding tax that is imposed on other royalty payments made to such nonresident and from any other withholding taxes imposed on other nonresidents.

William Vaughan Company will continue to monitor proposed changes on foreign reporting. For immediate questions or concerns, please contact our team of experienced tax professionals.

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Categories: Tax Compliance

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