Top 5 Tax Relief Strategies for Businesses Affected by Natural Disasters

Understanding Natural Disaster Tax Relief for 2024

In 2024, the United States endured 24 major weather and climate disasters, each resulting in over $1 billion in damages. These events, including hurricanes, wildfires, tornadoes, and floods, disrupted the lives of millions and caused widespread economic losses.

To assist with recovery efforts, the federal government has introduced tax relief programs aimed at helping individuals and businesses rebuild and move forward.

As you prepare to file your 2024 tax returns, take advantage of these relief options designed to ease the financial burden of recovering from a natural disaster.

What Tax Relief Options Are Available for Businesses?

The federal government offers various tax relief programs to help businesses recover from natural disasters. Eligibility depends on the extent of the disaster’s impact and your specific business circumstances. Here are five key tax relief options available to businesses:

1. Extended Tax Deadlines

Businesses located in federally declared disaster areas may qualify for extended deadlines to file and pay taxes. This relief often includes waivers for penalties on payroll, excise, and other business tax deposits.

While extensions are helpful, filing on time is recommended whenever possible. Errors or overlooked extensions could result in penalties that require a dispute. Retain all IRS notices granting extensions as proof to avoid potential complications.

2. Casualty Loss Deductions

Businesses with uninsured property damage or losses can claim casualty loss deductions. These deductions cover damage to property used for business or income generation, including assets owned by C corporations, S corporations, and partnerships.

Eligible expenses include repair costs required to restore property to its original state. Accurate documentation, such as insurance reports, contractor estimates, and receipts, is crucial. To expedite financial relief, businesses can amend their previous year’s tax return to claim the loss.

3. Employee Retention Credit

Businesses forced to halt operations due to disaster-related damage but continued paying employees may qualify for the employee retention credit.

Eligible businesses can claim a credit of 40% on up to $6,000 of qualified wages per employee, providing essential support to maintain payroll during the recovery period.

4. Accelerated Depreciation for Repairs and Replacements

Businesses can speed up the recovery of costs for rebuilding or replacing damaged assets through accelerated depreciation. This allows a larger portion of an asset’s cost to be deducted in the year it is placed into service, rather than spreading the expense over several years.

Bonus depreciation may also apply to qualified property, but businesses must maintain thorough records, including receipts, invoices, and evidence of the service date, to qualify for these deductions.

5. Penalty-Free Early Retirement Withdrawals for Business Owners

Business owners who need immediate funds to address disaster-related expenses may access their retirement accounts penalty-free. Early withdrawals from 401(k)s or IRAs typically incur a 10% penalty, but this is waived for those impacted by natural disasters.

Withdrawals are generally capped (e.g., $100,000 under recent legislation) and are still subject to income tax. This option can provide critical financial support during challenging times.

By leveraging these relief programs, businesses can reduce financial strain and accelerate their recovery efforts after a natural disaster.

Additional Considerations for Business Tax Relief

Do You Qualify for Business Tax Relief?

Businesses located in federally declared disaster areas may qualify for tax relief programs. Even if your business is not physically in a disaster zone, you could still be eligible if you rely on records or services from impacted regions (e.g., your accounting firm is located in an affected area).

In 2024, states most impacted by natural disasters included Florida, Georgia, North Carolina, South Carolina, Tennessee, and Virginia. To determine if your area qualifies, use the IRS disaster relief tool or contact the Disaster Hotline at 866-562-5227.

Are FEMA Payments for Businesses Taxable?

No. FEMA payments received for recovery assistance are not considered taxable income. They are exempt from income, self-employment, and employment taxes, offering businesses much-needed financial relief without added tax burdens.

Can Hurricane Clean-Up Costs Be Deducted?

Yes, in many cases. Clean-up expenses for hurricanes or other natural disasters in federally declared areas may qualify as casualty loss deductions. To be deductible, these costs must directly relate to restoring damaged business property. Be sure to maintain proper documentation to support your claims.

Consult FSMC Bookkeeping Services for Business Tax Relief

Navigating disaster-related tax relief programs can be complex, especially for businesses. Errors or incomplete documentation can lead to complications and missed opportunities for relief.

At FSMC Bookkeeping Services, we specialize in helping businesses recover after natural disasters. Our experienced team can guide you through tax relief options, ensure compliance with IRS requirements, and maximize your benefits.

Don’t wait until tax season—schedule a free consultation with FSMC Bookkeeping Services today. Let us help you create a customized recovery and tax strategy that ensures your business is on the path to recovery.