Monday, May 14, 2012

Plenty of Upcoming Tax Preparer Work Anticipated for Casualty Loss Claims

The current season of tax preparer work on 2011 tax returns is certain to require dealing with the consequences of damages from natural disasters. Several people in the United States were victims of a tornado, earthquake, hurricane, or forest fire.
Financial loss due to casualties creates potential opportunities to capture tax deductions. Limitations and procedures for determining a casualty loss are an important ingredient of registered tax return preparer study.
The first lesson about casualty losses is that they comprise a category of itemized deduction. Taxpayers with insufficient deductions to reach the standard deduction threshold are unable to utilize casualty losses. For itemizing taxpayers, following an RTRP study guide on casualty losses reduces tax liability, which usually means increasing a refund from the IRS.
Because of the many places where nature wreaked havoc in 2011, several locations were declared federal disaster areas. Such declarations are not required for taxpayers to claim a casualty loss. However, a person who incurred a loss within a federal disaster area is entitled to an advantage. Therefore, important knowledge to apply from tax preparer education is the ability of disaster area victims to apply a loss to a previous year return. This means that people with 2011 losses in federal disaster areas can report the casualties on a 2011 tax return or an amended 2010 return.
Losses from accidents, purposeful acts, or negligence are not deductible as casualty losses. The only damages that matter for a tax deduction are those caused by a sudden and unexpected event.
Damages reimbursed by insurance are also not included in a calculation of casualty loss for tax purposes. However, the part of damages paid by an individual taxpayer - such as the insurance policy deductible - does count toward the tax loss determination. In addition, many property losses from natural disaster are not covered by insurance. For instance, a tax loss can result from declining property value caused by an unexpected event that destroys uninsured trees and gardens.
The RTRP test computation of casualty loss eliminates the first $100 from consideration. Then, only the part of remaining loss exceeding 10 percent of taxpayer adjusted gross income is tax deductible.
Computing casualty losses on Form 4684 is sometimes tricky and demands help from a tax professional. People cannot rely on tax software to automatically know the impact of certain facts. For example, business property lost in a natural disaster is listed separately from personal property. Even individuals with home offices are affected by this consideration.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.