Safeguarding Your Tax Records and Declaring Your Losses

Do you have accessible backup of your tax information and documentation in the event of a natural disaster, or if a theft occurs? Carefully organize receipts and other documentation that may substantiate deductions and credits on a tax return. Scan paper records and documentation, and copy them onto a USB drive, CD or DVD. Store these in safe spot like a bank safety deposit box or with relatives for safekeeping. The IRS Publication 584, Casualty, Disaster, and Theft Loss Workbook, provides guidance on how to document your items in a room-by-room log, as well as the tax regulations for casualties, disasters and thefts.
 
Declaring casualty and theft losses can be a confusing process. Taxpayers must declare casualty losses in the year they suffered them unless they are in an area determined by the President to warrant federal disaster assistance. Those suffering property losses in the areas declared federal disaster areas during 2008 may amend their 2007 tax return to take the loss. This action will enable them to get the refund sooner since they do not have to wait until the 2008 tax return is filed. Federal aid and loans may also be available for residents and businesses in those areas.
 
Casualty and theft losses for personal property can be claimed as the result of destruction from unanticipated weather events such as wildfires, hurricanes, tornadoes, or from burglaries and break-ins, by filing Form 4684, Section A, Casualties and Thefts. If the property is not completely destroyed, determine the loss by figuring the decrease in fair market value minus any insurance reimbursements. Then subtract another $100 for each casualty or theft that occurred during the year. A total of all casualty and theft losses must be further reduced by 10% of the taxpayer's adjusted gross income. These limits do not apply to business and income producing property, such as rental property, which is claimed on Form 4684, Section B. Taxpayers who have incurred property losses, should file insurance claims promptly. Only those losses that are not covered by insurance should be claimed on Form 4684.
 
If the property is rental property, or other business-producing property that is completely destroyed, the deductible casualty loss amount is the adjusted basis in the property minus insurance or other reimbursement. If the property isn't completely destroyed, the deductible casualty loss is the lesser of either the decrease in the fair market value, or the adjusted basis of the property before the loss. Renters may qualify to declare a casualty loss for damaged furniture and property in their residence.
 
If you have any questions or we can assist you in safeguarding your records, please call Liberty Tax Service at 724-863-4447.