First, the IRS has delayed certain tax returns and payments for people who reside or have a business in the disaster area. The following
- Estimated payments due Sept 15th and Jan 16th
- Quarterly payroll tax returns usually due on Oct 31st and Jan 31st
- Personal tax returns on extensions due Oct 16th (although payments were due this past April 2023 and will still be considered late)
- Partnership and S-Corp tax returns on extensions and due Sept 15th
Are all extended until Feb 15th 2024.
If you need to take money out of a retirement account, you can waive the usual 10% early withdrawal penalty on the first $22,000, and you can also elect to spread that taxable income over 3 years.
See the IRS’s press release at https://www.irs.gov/newsroom/irs-hawaii-wildfire-victims-qualify-for-tax-relief-oct-16-deadline-other-dates-postponed-to-feb-15 for more information.
If you get disaster relief payments, they may or may not be taxable depending on what the money is for. The general rule is that if the funds are used for personal, family, living expenses, funeral expenses, repair or rehabilitation of your home, or the repair or replacement of your home’s contents it’s nontaxable. If the payment is for lost wages, it is taxable.
If your business lost inventory and keeps a running cost of goods sold, just track your ending inventory at the end of the year like normal.
If you lost depreciable business equipment or property, you can write off the rest of whatever has not been depreciated, minus whatever insurance reimbursement you receive (or expect to receive).
If you have lost personal property (for example your home, property inside your home, car, etc) you can either deduct the loss on your 2023 tax return, or you can amend your 2022 tax return. The loss is the lessor of two equations: (1) The basis (usually what you originally paid plus cost of major improvements and renovations) of your property, minus insurance money you receive or expect to receive. (2) The market value of your property before the fire minus the market value of your property after the fire, minus any insurance money you receive or expect to receive.
Edit 8/31/23:
Hawaii Dept. of Taxation has addressed some of these same issues. For those affected by the fires, Hawaii will consider extensions to file and pay taxes and for waivers of penalties and interest on a case-by-case basis. They outlined instructions on how to do so when your tax return is filed.
Hawaii also is adopting IRS section 139, which says that any amounts received by an individual as a “qualified disaster relief payment” are not taxable. (These amounts are also expensed by the business paying these costs.)
For more information, see the state’s announcement here: https://files.hawaii.gov/tax/news/announce/ann23-03_amended.pdf