Look Back in Claiming Losses from Katrina – As with any presidentially declared disaster, victims are allowed to claim their losses on the previous year’s tax return in order to recover some much needed cash ASAP. 

While I have done this on numerous occasions for clients who had earthquake and fire damages back in the PRC, things are a little different right now in regard to how IRS handles amended tax returns claiming refunds, as I’ve discussed on several occasions here. 

For those hurricane victims who have not yet filed their original 2004 income tax returns, and can ascertain the amount of their unrecoverable losses, claiming them on their 2004 1040 would probably be a wise move.  However, those people who have already filed their 2004 1040 may want to hold off claiming the losses until their 2005 1040.  Asking IRS for a refund could still trigger a full blown audit, which in this case would be even more dangerous than normal, if records have been lost in the hurricane, flood and fires that Katrina brought.  It would be one more disaster on top of what those people have already gone through.  

Of course, as always, specific plans on how to handle deducting these kinds of disaster losses should be done with the assistance of competent tax professionals and not attempted on one’s own.

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 9/06/2005 09:24:00 AM Send this post: