J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Disaster Losses

In the past several years, our country has experienced a large number of major disasters, including hurricanes, floods, fires, blizzards, earthquakes, and terrorist attacks. When large areas suffer sizable losses, the president may declare the areas eligible for special federal disaster relief. This disaster assistance comes in the form of disaster relief loans, special grants (money that does not have to be repaid), special unemployment benefits, and other types of assistance. Still, despite all these efforts by the federal government, as well as state, local, and private agencies, you may experience serious disruption to your business and loss to your business property. The tax law provides a special rule for certain disaster losses that will give you up-front cash to help you get back on your feet.

Typically, you deduct your loss in the year in which the disaster occurred. However, you may elect to deduct your loss on a prior year’s return, which can result in a tax refund that may provide you with needed cash flow.

Example

In January 2013, you suffer an uninsured disaster loss of $25,000. You may, of course, deduct the loss on your 2013 return, which is filed in 2014 (assuming you are on a calendar-year basis). Alternatively, you may elect to deduct your loss on your 2012 return.

If your loss occurs later in the year, after you have already filed your tax return for the prior year, you can still get a tax refund by filing an amended return for the prior ...