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Taxpayers can get disaster tax relief through personal casualty loss deductions

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2 years ago

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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 2024 Form 4684 instructions these disaster relief benefits only apply to presidentially declared disasters that began between Dec. 28, 2019 and Dec. 12, 2024 and ended no later than Jan. 11, 2025.

“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 CliftonLarsonAllen‘s Charlotte, North Carolina office. “The rules are a bit tricky, because you really have to understand whether or not you are under the old rules or the new rules. Basically, the general rule with personal casualty losses is they are deductible if the president declares a disaster area. For individuals, up until this disaster relief bill was passed, individuals were usually limited on how much of a disaster loss they could take to 10% of their adjusted gross income.”

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 instructions for Form 4684, Casualties and Thefts, provide a list of bullet points for specific disasters, including Hurricanes Harvey, Irma and Maria, and the California wildfires of 2017 and January 2018. 

“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, Trump threatened to withhold disaster aid unless California changed its water management policies. But natural disasters can hit any state, and Smith doubts the administration or Congress would withhold tax relief from a state just because of how its residents tend to vote.

“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.”

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Accounting

AI-Driven Automation and Continuous Accounting Frameworks

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6 days ago

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August 15, 2026

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The accounting profession is undergoing a fundamental structural transition as enterprise finance departments shift from periodic month-end closes toward automated continuous accounting models. By integrating specialized machine learning algorithms directly into enterprise resource planning (ERP) platforms, chief accounting officers are transforming financial reporting from a retrospective exercise into a real-time operational asset.

The Shift from Periodic Close to Continuous Financial Reporting
Traditional accounting workflows heavily relied on manual data reconciliation, spreadsheet calculations, and multi-week closing cycles at the end of each fiscal period. In contrast, continuous accounting frameworks utilize automated software agents to process, validate, and post transactional data in real time as business activities occur.

Automated bank reconciliation tools cross-reference incoming bank feeds, invoice records, and purchase orders automatically. By resolving transactional variances instantly throughout the month, corporate accounting teams eliminate the traditional workload spikes associated with quarterly and annual closes.

Machine Learning in Audit Trails and Anomaly Detection
Advanced natural language processing (NLP) and machine learning tools are redefining internal audit and financial control environments. Automated systems analyze 100% of general ledger entries, identifying anomalous transactions, duplicate payments, and unauthorized journal entries in real time.

Rather than relying on random statistical sampling, corporate internal auditors can focus their attention on high-risk flags automatically surfaced by algorithmic monitoring platforms. This continuous risk assessment strengthens internal controls over financial reporting (ICFR) and significantly reduces fraud risk.

Evolving Roles for Accounting Professionals
As routine data entry and manual reconciliation tasks become fully automated, the skill set required for accounting professionals is shifting toward data analysis, system design, and strategic business advisory.
– Systems Governance: Accountants are increasingly responsible for monitoring algorithmic accuracy and managing data integration pipelines.
– Business Partnership: Finance professionals leverage real-time financial dashboards to advise operational leaders on margin management and working capital allocation.
– Regulatory Compliance Management: Accounting teams utilize automated platforms to ensure compliance with dynamic tax codes and international accounting standards.

Core Implementation Recommendations
1. Deploy Automated Reconciliation Tools: Integrate continuous transaction processing modules into existing enterprise ERP architectures.
2. Establish Algorithmic Governance Controls: Implement strict internal testing protocols to ensure automated accounting rules comply with GAAP/IFRS standards.
3. Reskill Accounting Teams: Invest in training finance staff on data analytics, workflow automation, and predictive financial modeling.

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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2 weeks ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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2 weeks ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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