Jump to Main Content
USA flagAn Official Website of the United States Government
Industry Word

Blogs.Industry Word

Register

Hurricane Sandy: Tax and Financial Implications for Your Small Business

Comment Count:
7

Comments welcome on this page. See Rules of Conduct.

Hurricane Sandy: Tax and Financial Implications for Your Small Business

By BarbaraWeltman, Guest Blogger
Published: December 21, 2012

The storm that hit the East Coast of the U.S. on October 29 created devastation for individuals and businesses. Many companies were forced to remain closed for days or even longer because of damage to business facilities, employees being unable to get to work due to the failure of public transportation systems, closures of bridges and tunnels, power outages and long gas lines. Here is what companies should know about tax and financial opportunities to help recover from this storm and the lessons for everyone going forward.

Tax relief

The IRS has made a number of pronouncements in the wake of Hurricane Sandy to provide relief to affected businesses as well as to those who want to help hurricane victims. Here is a brief roundup of some key items:

Extensions for filing returns and paying taxes. The deadline for filing tax returns and paying income taxes otherwise due from the time of the storm through the end of January 2013 is extended until February 1, 2013. This means that the fourth installment of 2012 estimated taxes for corporations (otherwise due on December 17, 2012) and for self-employed individuals (otherwise due on January 15, 2013) can be made up to February 1, 2013.

Relief applies automatically to businesses within declared disaster areas. Businesses outside these areas that have been impacted by the storm (e.g., records are stored within a disaster area) can call the IRS and request relief at 866-562-5227.

Technically, the IRS has no authority to extend the deadline for depositing payroll taxes and excise taxes. However, it has provided relief nonetheless by waiving any late deposit penalties as long as the deposits are made by November 26, 2012.

Disaster losses. Businesses in an area eligible for FEMA assistance (an area declared to be a disaster area by the president) that have uninsured property losses can opt to deduct them on their 2012 tax return or claim them on a 2011 return. Taking the loss on a 2011 return requires filing an amended return, which can produce a tax refund more quickly than waiting to file for 2012. Before opting to do so, consider:

  • Which year will result in the larger tax savings (based on overall income and deductions for each year)? You may not know this until your 2012 return is being prepared in 2013.
  • Taking the loss on the 2011 return does not reduce self-employment tax for that year. The 2012 disaster loss only impacts income taxes in 2011 if the loss is carried back to that year.

If you’re eligible for a disaster loss deduction, work with your tax advisor to determine the better year in which to take the loss.

Property losses

Victims of the storm may recoup some of their property losses and get back to business by insurance recoveries, assistance from FEMA or other agencies and organizations, and through SBA disaster loans (explained later).

Property damage. If your business property was damaged or destroyed, your business owner’s policy (BOP) can provide relief to the extent of the coverage you carry (minus your deductible). Watch for limits on the policy, such as payments for flood or hurricane damage; talk to your agent about this.

Lost profits. If you have business interruption coverage, you may be reimbursed for expenses you have during your recovery period, such as rent, payroll, and utilities. The coverage also pays for lost profits (defined in your policy). It may also pay for replacement space, such as another office that you use until your own can be repaired.

If you don’t have such coverage, discuss this with your insurance agent to determine whether to buy it now for protection in case of future disasters.

Disaster relief grants. If your business receives any disaster relief grants, they are fully taxable. Unlike such help for individuals, disaster relief payments to businesses are always taxable.

Other relief items

Even though you are outside of the affected areas, your business may help with disaster relief efforts. If your business has a leave-donation program where employees can donate unused vacation, sick, or personal days to charity, there is a special rule for donations to storm victims. Usually, the donated leave is taxable to employees, but for donations for Hurricane Sandy relief, the unused leave is tax-free. Employees cannot take a charitable contribution deduction; employers can. Alternatively, employers can opt to treat the donated leave as compensation. The funds must be forwarded to an IRS-approved charity no later than December 31, 2013.

If your business obtains a disaster loan from the SBA  for physical damages or economic injury, the loan proceeds are not taxable. Interest payments are tax deductible.

Conclusion

Natural disasters are devastating for those impacted by them. They also serve as warnings to businesses outside affected areas to become better prepared for future events. Work with your tax and insurance advisors to review your disaster preparedness and recovery plans.

About the Author:

Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BarbaraWeltman.

Comments:

All-natural disasters are devastating for those impacted by them. They also serve as warnings to businesses outdoors impacted places to turn out to be far better prepared for future events. Function together with your tax and insurance coverage advisors to overview your disaster preparedness and recovery plans.
"Natural disasters are devastating for those impacted by them. They also serve as warnings to businesses outside affected areas to become better prepared for future events. Work with your tax and insurance advisors to review your disaster preparedness and recovery plans." - well said. One cannot assume that it only happens to others. Let's stay prepared and alert.
Wow, you really know your stuff Barbara. This information is as pertinent as ever with the fires that are raging in New Jersey today. Even in areas that have survived Hurricane Sandy, there are many other reasons to be sure your have the proper insurance coverage.
I have a brother who had a business in New Jersey. Got totally flushed down because of Hurricane Sandy...i will share this article with him..great post!
Hurricane Sandy had seriously affected the business establishment. Some are damaged to the extent that no work could take place for at least few months. It is delight to see your article here. Your tips would help people to build the facility once again without bothering much about finance.
After this disaster, I am sure people will look into additional coverage. I am sure people never thought they would be in this situation. This is why it is so important for the government to help guide them back to normal living.
It is a good idea for business owners and homeowners to get an annual insurance policy review so they can make sure they have the best coverage possible.

Leave a Comment

You must be logged in to leave comments. If you already have an SBA.gov account, Log In to leave your comment.

New users, Register for a new account and join the conversation today!