Accounting
Taxpayers can get disaster tax relief through personal casualty loss deductions
The pace of natural disasters seems to be accelerating with climate change, prompting taxpayers and tax preparers to search for ways to deduct catastrophic losses.
The Federal Disaster Tax Relief Act of 2023, which Congress actually passed in December 2024, enables taxpayers who have been affected by federally declared disasters to deduct personal casualty losses without itemizing deductions and without the typical reduction of $100 per casualty loss and 10% of adjusted gross income. Instead, the deduction would be reduced by $500 per casualty loss. The tax relief applies to any area where the president declared a major disaster between Jan. 1, 2020, and Feb. 10, 2025. The Internal Revenue Service recently clarified in its
“We have questions coming in from California all the way down to Florida about whether or not a local or a regional disaster is eligible for tax relief,” said Mike Smith, a principal at Top 10 Firm
The new rules are more expansive. “Because of all the hurricane activity that has been happening over the last two or three years, Congress finally passed the Federal Disaster Relief Act of 2023, and that reinstated a special category of losses known as qualified disaster losses,” said Smith. “There’s a special set of rules that you have to run through to figure out whether or not your loss is a qualified disaster loss.”
The effect of the law is to suspend the 10% AGI threshold, so taxpayers can take a personal casualty loss without having to itemize. “As you can imagine, that’s a huge relief for a lot of people, if your disaster qualifies for this relief,” said Smith.
The IRS
“More recently, what they did with the legislation is laid out a new set of parameters,’ said Smith. “It expanded this definition, so if you have a disaster that was declared by the president between the periods of Jan. 1, 2020, and Feb. 10, 2025, and the storm in question had a start date between Dec. 28, 2019 and Dec. 12, 2024, and an end date by Jan. 11, 2025, if you fall into each one of those criteria, then the storm qualifies.”
The timing limits the potential budgetary impact of the law, which is especially significant in the wake of last month’s California wildfires. “They wanted to make sure that they understood the full universe of disasters at the time the bill was enacted,” said Smith. “It allows them to understand what their spending is going to be. You can only imagine, if this captured the California wildfires, or if this was just open ended, or if they had extended that beginning date another month, you would have added billions and billions of dollars to the cost of this bill.”
Taxpayers who have been hit by natural disasters may have a difficult time finding their financial records if they plan to file an amended return as a result of the legislation. “Hopefully they’ll have their records,” said Smith. “There may be some leeway. There might be some safe harbors for certain types of losses if you wanted to get a qualified appraisal, but even that’s difficult. Asking an appraiser to value something three years in arrears might not be that easy, but you might be able to hire somebody to do some market research to see what the decline in fair value was of your property as a result of the disaster going back a few years. But it’s much more advisable to do that when a disaster actually occurs.”
This could be an opportunity for accountants to help clients who have fallen victim to a natural disaster to claim casualty losses from years ago by filing an amended return.
“We have some clients who might have filed a return, let’s say last year, before this was enacted,” said Smith. “Let’s say you’re somebody in Florida who suffered from one of the hurricanes last year. You might have filed a return with us, and your disaster loss would have been subject to that 10% AGI threshold. This gives us an opportunity to file an amended return and claim a refund, potentially.”
The American Institute of CPAs would like to see further relief for taxpayers affected by a disaster. Earlier this month, the AICPA sent a letter to the IRS asking it to incorporate a checkbox and Federal Emergency Management Agency disaster number space into various tax returns to provide an alternative method for taxpayers to ensure they receive the appropriate disaster relief and help prevent errors that lead to incorrect notices being issued to affected taxpayers.
The AICPA’s recommendation would supplement the current IRS Disaster Hotline self-identification services and serve as a backup to the Individual Master File and Business Master File taxpayer accounts where the zip codes in affected taxpayers’ accounts do not readily indicate that such taxpayers are eligible for disaster relief.
The AICPA recommended the IRS add a checkbox and space for the FEMA declaration number to the first page of at least the following tax returns:
- Form 1040, U.S. Individual Income Tax Return, series;
- Form 1065, U.S. Return of Partnership Income, series;
- Form 1065, U.S. Return of Partnership Income, series;
- Form 1120, U.S. Corporation Income Tax Return, series;
- Form 990, Return of Organization Exempt from Income Tax, series;
- Form 1041, U.S. Income Tax Return for Estates and Trusts, series;
- Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, series; and,
- Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.
“Although IRS systems automatically mark taxpayer accounts as eligible for disaster relief based upon zip codes from a disaster declaration, such methodology does not capture all eligible taxpayers,” said Daniel Hauffe, senior manager of AICPA tax policy and advocacy, in a statement. “The AICPA’s recommendations would serve as a backup to the IRS’s current automated process of identifying taxpayers eligible for disaster relief.”
Some taxpayers worry the Trump administration might deny them tax relief if the disaster occurs in blue states like California. Last month,
“On the one hand, if you use prior disasters as a benchmark, I think there’s a certain level of bipartisanship and sympathy between the parties, because what happens in California this year could happen to Florida next year, and there’s a certain amount of empathy that the members of Congress might have with each other, notwithstanding the fact they might be from different parties,” said Smith.
Alternatively, disaster tax relief might be used by lawmakers as an incentive to pass another needed piece of legislation, such as lifting the debt ceiling or extending the expiring provisions of the Tax Cuts and Jobs Act.
“The TCJA is a whole different animal in terms of what shape that’s going to take,” said Smith. “They’ve talked about budget reconciliation. There’s one group in the Senate that wants to do two bills this year, one involving border security, energy and maybe some defense spending, and then a separate bill later this year with tax items like TCJA extenders. That’s the two-bill approach that I think John Thune wants to pursue as the Senate majority leader. And then if you go and look at the House, a good portion of the House are in the one-bill camp. They want to take border security, energy, tax, and roll it into one ‘big, beautiful bill,’ and pass that.”
Donor-advised funds are continuing to grow while enjoying substantial tax deductions for charitable giving even as many contributions go to other DAFs and private foundations instead of actual charities, according to a new report.
The
National sponsor assets have grown at by far the fastest pace, increasing 92% from 2020 to 2023. (National sponsors are those with no specific geographic or cause-based mission, such as Fidelity Charitable, the National Philanthropic Trust and the American Endowment Foundation.) While they represent only 3% of DAF sponsors, national sponsors held 70% of all DAF assets, took in 73% of all DAF contributions, and gave out 61% of all DAF grant dollars in 2023.
The median DAF account size across all sponsors was $135,086 in 2023. National sponsors had the largest accounts, at $390,910. Donation processor accounts were by far the smallest, at $305. (Donation sponsors administer mass-scale contributions, such as workplace giving, payroll deduction or crowdfunding programs. Some examples include PayPal Charitable Giving Fund, Network for Good and American Online Giving Foundation.)
The median DAF payout rate across all sponsors was 9.7% in 2023. This payout has stayed around 9 to 10 percent for the past four years. Donation processors have by far the highest payout rates of any sponsor type, granting out around 82% in any given year. Community foundation sponsors have the lowest rates, granting out around 8 to 9%. (Community sponsors mainly support charities in a specific geographic region such as a state, county or city. Examples include the Silicon Valley Community Foundation, the Chicago Community Trust and the Community Foundation of the Ozarks).
DAF-to-DAF grants accounted for an estimated $4.4 billion in 2023. Some of these go-between gifts are the commercial sponsors’ largest. In 2023, for example, Schwab Charitable’s third-largest grant was to Fidelity Charitable, for $122 million. That same year, Fidelity Charitable’s largest grant was to National Philanthropic Trust, at $195 million, with Schwab Charitable in second place at $183 million.
Private foundations gave at least an estimated $3.2 billion dollars in grants to national donor-advised funds in 2022. Private foundations’ 5% annual payout requirement is supposed to ensure their grants go to operating charities in a timely way, but because DAFs have no payout or account-level disclosure requirements, foundation-to-DAF grants can undermine the foundation payout rules and transparency rules as well.
The report argues for more transparency. “The public only has access to aggregate sponsor-level information about DAF grants and payout rates,” said the report. “This means that individual DAF accounts that pay out at high rates may be providing statistical cover for DAF accounts that pay out very little, or nothing at all. And there is no way for regulators or the public to trace significant donations back to major donors, as is possible for private foundations.”
The report noted that every year, more charitable dollars are diverted to donor-advised funds while nonprofits on the ground struggle harder to get funding. “Donors reap significant tax savings from DAF giving, and those savings are subsidized by other American taxpayers with no guarantee of commensurate public benefit,” said the report. “In the absence of adequate transparency, DAFs are ripe for mistreatment by donors and for-profit actors. Congress could ensure that DAFs are more accountable to the public and move funds in a timely manner to charities on the ground.”
It’s an exciting time for business owners when they take their small businesses to the next level, expanding to other locations.
While there are many moving parts when opening a new office or store in the same state, business clients have additional tasks to tackle when branching out into other states. As a trusted accounting and tax resource, you will likely be their go-to for answers when they have questions about what’s involved in those efforts.
In this post, I will cover three important compliance components of setting up shop in another state.
Foreign qualification
Foreign qualification is the process of registering an existing entity in one state as a foreign entity in another state to legally allow it to conduct business there. Different states have different
After a company has foreign qualified, it must fulfill the state’s business compliance requirements — e.g., obtain licenses, file annual reports, comply with employment laws, and pay applicable state (and possibly local) taxes.
State income tax
State income tax is a state-mandated tax that most states collect on business income and employees’ pay. Any business with employees in the state is responsible for withholding SIT from employees’ gross wages or salaries and remitting that money to the correct state tax agency. Typically, state tax rates vary by state and differ for business entities and individuals.
Currently, nine states do not levy an individual income tax, and a few also do not have a corporate income tax:
- Alaska (no individual income tax, but has a graduated corporate income tax);
- Florida (no individual income tax, but has a corporate income tax);
- Nevada (no individual income tax; no corporate income tax, but levies a gross receipts tax on business entities with gross revenue exceeding $4 million in a fiscal year);
- New Hampshire (doesn’t tax individual’s wage income and is eliminating the tax on dividends and interest income for the 2025 tax year; has a Business Profits Tax and entities with gross receipts over $298,000 are subject to a Business Enterprise Tax);
- South Dakota (no individual or corporate income tax);
- Tennessee (no individual income tax; no corporate income tax, but has a business tax, a privilege tax for doing business by making sales of tangible personal property and services, which usually consists of two taxes: a state business tax and a city business tax);
- Texas (no individual income tax; no corporate income tax, but has a franchise tax, a privilege tax on business entities formed in or doing business in the state);
- Washington (no individual income tax; no corporate income tax, but imposes a business and occupation or public utility tax on gross receipts);
- Wyoming (no individual income tax or corporate income tax, but has a Business Entity License Tax).
Note that cities and counties in some states charge their own income tax as well, even if the state does not levy income tax.
Before withholding SIT and local income tax from employees’ pay in a state, an employer must register for a state-issued employer identification number and follow the local government’s rules for registering to withhold and remit its income tax. Businesses must pay close attention to meeting the state and local payroll reporting and payment deadlines to avoid fines and penalties.
State unemployment insurance
Businesses with employees in a state with its own unemployment insurance program must also register to contribute to that program. Like the federal unemployment program, SUI (also known as SUTA) provides temporary payments to workers who become unemployed due to no fault of their own. A few states — Alaska, New Jersey and Pennsylvania — require employees to pay a portion of the SUI. The laws of the state establish the taxable wage threshold and the unemployment tax rate.
Employers must pay federal and state unemployment insurance for each employee based on the employee’s wages or salary. The 6% FUTA tax applies to the first $7,000 paid (after subtracting any FUTA-exempt payment amounts) to each employee during a calendar year. Please note most states have a credit reduction amount that reduces the 6% FUTA tax; the credit reduction rates can change each year for each state. States’ SUI rates vary, with each state determining the wage base, or threshold, for when SUI kicks in. Businesses can anticipate that SUI tax rates might change from year to year in response to economic conditions.
To register for SUI, businesses must register with the state department (e.g., Department of Revenue or Department of Employment Security) responsible for unemployment taxes. Businesses need an Employer Identification Number from the IRS to set up an account with the state for filing and remitting SUI taxes. Generally, states require businesses to report and pay their SUI quarterly.
There’s more
Also, inform business clients that some states require employers to pay or withhold additional payroll taxes. For example, employers in California must pay an Employment Training Tax, which provides money to train employees in specific industries and withhold or pay State Disability Insurance from employees’ paychecks, which temporarily pays workers when they’re ill or injured due to non-work activities or for pregnancy, and Paid Family Leave benefits. In Kentucky, many counties and cities impose an Occupational License Fee on individuals’ payroll and the net profits of a business.
Also, businesses with workers on payroll in a state must pay for workers’ compensation insurance; no portion of that cost may be deducted from employees’ pay.
The bottom line
As your clients’ trusted tax advisor, I encourage you to provide the most clear and comprehensive expertise that your licensing allows so your clients understand their tax and payroll obligations when they expand their operations to other states and localities. Also, make them aware that states’ rules and regulations vary for companies registering as foreign entities within their jurisdictions. It’s critical that your business clients research the requirements that apply to them and get the professional legal guidance they need to fully understand and comply with their responsibilities.
Senate Republicans took a major step toward enacting President Donald Trump’s tax cut agenda and increasing the U.S. debt ceiling, potentially injecting a small degree of certainty into financial markets roiled by the president’s tariff policies.
The Senate early Saturday morning passed the budget resolution by a 51-48 margin after an overnight marathon of votes on amendments. Two Republican senators, Susan Collins of Maine and Rand Paul of Kentucky, joined all Democrats in opposing the budget resolution.
The
It also permits for $1.5 trillion in new tax cuts over a decade, and calls for a $5 trillion increase to the federal borrowing limit to avert the Treasury Department hitting the debt ceiling this summer.
The vote comes at a perilous moment for the economy after Trump unveiled tariffs on nearly every country this week, causing global stock markets to tumble and sparking fears of a worldwide recession.
Republicans have described the tax cuts — a proposed total of $5.3 trillion over 10 years in the Senate version and $4.5 trillion in the House’s — as the next phase of Trump’s two-part economic agenda after the tariffs. The president’s allies argue that a fresh round of levy reductions will boost markets and provide certainty for businesses to invest. However, it’s not clear if the scope of the tax package counter the tariff fears gripping investors.
Congressional Republicans say renewing the expiring portions of Trump’s first-term cuts are imperative to avert a tax hike on U.S. households next year.
“A typical family of four making $80,000 a year would end up sending an additional $1,700 to the government next year,” Senate Majority Leader John Thune said.
The budget also calls for $150 billion in new funds for the military and $175 billion for immigration efforts, two top spending priorities for Trump, despite broader efforts to slash the federal workforce and budget.
Political posturing
Democrats said the GOP plan will skew tax benefits toward affluent households, at a time economists say lower-and-middle class individuals are poised to bear the brunt of the price hikes from tariffs on imported goods.
“This is the Republican agenda, plain and simple: billionaires win, American families lose,” said Senate Minority Leader Chuck Schumer of New York..
The budget resolution heads to the House next week where Speaker Mike Johnson will be faced with the challenge of wrestling the measure through his fractious group of Republicans, where he can only afford to lose a handful of votes.
“I look forward to working with House leadership to finish this crucial first step and unlock legislation that strengthens our economic and fiscal foundations,” Treasury Secretary Scott Bessent, who was involved in developing the Senate plan, said in a statement.
Some fiscal hawks among House Republicans, including Kentucky’s Thomas Massie and Ralph Norman of South Carolina, have grumbled about the plan for not calling for enough spending cuts.
Texas Representative Chip Roy, a spending hawk and Freedom Caucus member, said he’d vote against the Senate budget if it were brought to the House floor. In contrast, the House version “establishes important guardrails to force Congress to pump the brakes on
The Senate budget resolution provides for at least $4 billion in spending reductions over a decade. That’s significantly lower than the $2 trillion target envisioned in an earlier House version.
Spending squabble
“The Senate response was unserious and disappointing, creating $5.8 trillion in new costs and a mere $4 billion in enforceable cuts, less than one day’s worth of borrowing by the federal government,” House Budget Chairman Jodey Arrington of Texas said Saturday in a statement. He said he’ll work to ensure the final package has large spending cuts.
Senate leaders drastically scaled back the spending cut parameters after several Republicans warned that widespread reductions would likely harm benefits for their constituents, including Medicaid health coverage for low-income households and those with disabilities.
If the House rejects the Senate budget, a new compromise would need to be worked out between the two chambers before they can begin crafting the tax legislation.
Republicans have a series of hard — and potentially divisive — choices to make to squeeze their long list of tax cut proposals into the $1.5 trillion ceiling they set for themselves.
Senate Finance Committee Chairman Mike Crapo has said he has received more than 200 requests for tax cuts to include in the bill.
Atop the list are several campaign trail pledges from Trump, who’s called for eliminating taxes on tipped wages and overtime pay. The president has also said he wants to create a new deduction for car buyers and seniors.
A group of House lawmakers have demanded an increase in the $10,000 cap on the state and local tax deduction, and most Senate Republicans back a repeal of the estate tax.
The budget also calls for using a gimmick to count the extension of Trump’s 2017 tax cuts — estimated to cost nearly $4 trillion — as $0 for official scoring purposes.
This decision will have to get the approval of the Senate parliamentarian before the legislation goes for a final vote, a risky gambit that could leave the GOP rushing at the last-minute to scrounge for offsets for the tax cuts.
Republicans agree on a relatively narrow universe of spending cuts to include in the legislation, including reductions to food stamps, Pell Grants and renewable energy subsidies.
The Trump administration is also weighing a handful of tax increases to offset the costs — a surprising development for a party that was once universally opposed to any levy hikes.
Among the measures under consideration are introducing a new income tax bracket for those earning
Lawmakers envision enacting the final tax package sometime between May and August. As long as legislation adheres to the rules detailed in the budget resolution, it can pass with just Republican votes.
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