In the first post in the series, we discussed accounting for losses and in part 2 we shared information on calculating payroll in the event of a disaster. To review the information, you can click here to visit part one (http://bit.ly/2g7DZxQ) and part two: (http://bit.ly/2x3T9et). Today’s post will go over filing taxes and reporting insurance proceeds.

Extending Tax Deadlines

After a major disaster, the IRS will automatically extend tax deadlines for individuals and businesses in the affected areas. Typical extensions vary based on the severity of the disaster and the type of tax.

  • For income tax returns, the extension may be several weeks or months.
  • For payroll tax deposits and information statements, the extension is generally only a few business days.

Note that an extension of time to file may not include an extension of time to pay. You should continue to make estimated tax payments as close to your usual schedule as possible to avoid additional interest charges.

If a major disaster disrupts your business and you are outside of the federally declared disaster area, or some other event, such as a fire, affects only your business, you may also be eligible for relief. Visit the IRS website or speak with your accountant to learn how to apply for an extension or to have penalties abated.

Reporting Insurance Proceeds

The exact accounting treatment of insurance proceeds depends on the nature of the policy and when payments are made. However, there are a few common themes.

  • Insurance proceeds should be reflected on your financial statements. Even though insurance isn’t a typical revenue or expense, it’s still important information.
  • Insurance is generally a gain. However, it’s offset by the disaster losses you claim, so the net accounting effect is neutral unless your net insurance proceeds exceed your actual losses.
  • Record insurance proceeds when you know how much you’ll receive. Ask your controller services about contingency reporting and how to disclose a pending claim.

While these rules may seem complex, especially if you’re currently dealing with the results of a disaster, remember that they follow general accounting concepts. The goal is to accurately report your current assets and earnings. This includes totaling up your losses so you can claim your full tax deductions and any other post-disaster benefits you may be entitled to. Having a broad understanding of the general concepts will allow you to work more efficiently with your controller services to complete the technical reporting requirements.

If you are interested in speaking more in depth on planning and dealing with the effects of a disaster on your business, give us a call and our bookkeeping and payroll professionals would be happy with to speak with you.

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This information was written by Dennis Najjar, co-founder of AccountingDepartment.com, and shared on CPAPracticeAdvisor.com.

If you would like information on SBA disaster loans and FEMA assistance, you can review details at https://lendedu.com/blog/sba-disaster-loans-fema-assistance/

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