Taxes may be the last thing on the minds of small-business owners affected by the Southern California wildfires, but a delay in tackling the issue could mean missing out on important fire-related tax help.
Some of the benefits unveiled this week for eligible taxpayers include extensions to file and pay taxes, relief from penalties and interest, free copies of tax records and reduced property taxes.
On top of that, there's a way to turn back time -- at least as far as your taxes are concerned. A small-business owner with disaster-related losses that aren't covered by insurance can file an amended 2006 return to deduct the eligible losses even though they happened this year, as long as they occurred in a federal disaster area as designated by the president. That will mean a faster refund than if the loss is claimed on 2007 returns.
"If you need money now, that's no-strings money you can get very quickly," said Suzan Dennis, managing partner at Dennis & Dennis, an accounting firm based in Rancho Bernardo, Calif.
The fires did not damage her eight-employee business, but Dennis and her family were temporarily evacuated last week and her children's schools were closed. Dennis has been fielding calls from clients, including those who lost their home-based business sites in the fires.
Some are still trying to round up clean clothes and toothpaste, but others are worrying about the tax implications of the disaster, which an early estimate put at having caused $1.5 billion in insurable damage. Of course that figure doesn't include lost productivity at the hundreds of small businesses that closed temporarily because of the fires.
Although tax authorities aren't waiving taxes due, many are giving small-business owners and others a break by allowing more time to pay without late penalties.
Here is a roundup of some of the benefits for which a small-business owner affected by the fires might qualify.
Federal business and personal income taxes
The Internal Revenue Service will automatically extend deadlines for filing tax returns and making payments for small businesses and other taxpayers in the federally declared disaster area, which includes parts of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura counties.
Businesses outside that area that were affected by the fire will need to call the IRS disaster hotline at (866) 562-5227 for disaster relief.
The IRS extension applies to returns or payments due Oct. 21, the day the fires started, through Jan. 31, 2008. That time period covers the Oct. 31 due date for federal withholding tax returns and the Jan. 15 estimated tax payments many self-employed business owners will owe.
Both the IRS and the state also will allow disaster-related casualty losses to be deducted on this year's tax return or on an amended 2006 return.
The catch is, it can be hard to qualify for the casualty loss deduction. It applies only to uninsured losses. And the loss has to exceed 10% of your adjusted gross income plus $100 to be deductible.
"The question is, will it become a deduction for tax purposes?" said David Flamer, a certified public accountant in Agoura Hills who has had plenty of personal experience with natural disasters. His office was temporarily closed because of the 1994 Northridge earthquake, and his family was evacuated from their Oak Park home during the 2005 Topanga fire.
And some small businesses compensated by their insurance companies might actually have tax gains, he warned.
"It isn't pleasant, but it's possible," Flamer said. "In situations like this, there is a time limit on reinvesting those proceeds."
State business and personal income taxes
California will match the IRS' automatic postponement periods, the state Franchise Tax Board said Monday. As with the federal taxes, most individual taxpayers have already filed and paid their 2006 extensions, which were due Oct. 15. Those small-business owners and other who owe estimated taxes Jan. 15 will have until Jan. 31 to pay without interest or late penalties.
The board also has delayed mailing its monthly bills for businesses and taxpayers in collection. The suspension runs Oct. 22 through Nov. 7. Once the bills are resumed, the delinquent business taxpayers and others will have 30 days to pay.
Sales and use taxes and special business taxes
The state Board of Equalization will allow any taxpayer or fee payer who lives or works in the disaster area to request a one-month extension for filing returns as well as possible relief from interest and late penalties.
Filings delayed by disruption in the U.S. Postal Service or private mail and freight companies also will be considered. Forms are available at the board's website, www.boe.ca.gov, or by calling (800) 400-7115. The board also will accept a signed letter explaining why a small-business owner cannot file on time because of the fires.
The extension requests can be made within 30 days of the return or payment due dates. The most recent due date for sales and use tax was Wednesday.
Relief might also be available for small businesses that must pay the special business taxes and fees the board collects, including alcoholic beverage and cigarette and tobacco products taxes and underground storage tank maintenance fees.
State payroll taxes
Small businesses and other employers affected by the fires will have a 60-day extension to file their state payroll reports with the Employment Development Department and to pay the payroll taxes without penalty or interest.
The extension for payroll taxes, which include unemployment insurance, employment training tax, state disability insurance and California personal income tax, is not automatic. Written requests, along with the previously unfiled reports and payments, must be postmarked no later than Dec. 20.
Free replacement records
Many of the tax-collecting groups mentioned above will provide free replacement records to small businesses whose tax papers were lost in the disaster. Contact individual agencies for information.
Just be sure those copies aren't mailed to a location destroyed or inaccessible because of the fires, accountant Dennis warned.
Based on her experience with clients in previous disasters, including the 2003 Cedar fire, Dennis recommends that small-business owners open a post-office box and fill out a change-of-address form to ensure all their important mail arrives at one place.
Don't forget to fill out an individual change-of-address form for key agencies such as the IRS and the Franchise Tax Board, she added.
Your accountant should also have copies of your tax records on file. One key record a small business will need is its lease. Accounts-receivable records are also crucial.
Small-business owners whose property has suffered damage of at least $10,000 because of the fires can apply for a reduction in property taxes. To apply, contact your county tax assessor's office. A list of offices is online at www.boe.ca.gov.
Although the amounts are not likely to be large, small businesses that pay property tax on personal property such as computers and desks might also be able to file a request for a reduction, said Flamer, the Agoura Hills-based accountant.
His message to small-business owners: Don't delay when it comes to figuring out tax consequences from the disaster.
"Those phone calls should be happening now."