Tax Season: Factor the Losses

Everyone’s favorite time of the year is rapidly approaching, the tax deadline.

As you’re thinking about the past year, make sure to consider any property losses you may have incurred in 2011. Many people up and down the East Coast suffered losses due to Hurricane Irene, which was by most estimates one of the top ten most destructive and deadly hurricanes to hit the United States since 1980. Irene was a tragedy, but the silver lining is that according to the IRS, losses may well be deductible.

Keeping the terminology clear may help you understand which losses are deductible and which are not. Remember, a casualty occurs when your property is damaged as a result of a disaster such as a storm, fire, car accident or similar event. A theft occurs when somebody steals your property. A loss on deposits occurs when your financial institution becomes insolvent or bankrupt. Any losses incurred as a result of hurricane damage are considered casualties, particularly since Hurricane Irene was one of the manyfederally recognized disasters in 2011.

However, while losses are deductible, it’s important to know that if you have insurance, you must have filed a timely insurance claim. Any reimbursement you received from insurance must be taken into account and subtracted when figuring your loss. This includes any expected reimbursement even if you have not yet received it. This booklet on Casualties, Disasters & Theft from the IRS (PDF) will help you decide if the casualty, loss and theft deductions apply to you.

Taxes are never fun, but being prepared for all eventualities helps whether the disaster is a hurricane or a Form 1040. Make sure your accountant is aware of any losses you may have suffered in 2011.

And when you’re done with the taxes, get the party hats out and celebrate another tax season dealt with.

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