This week, Gail outlines some of the ways the IRS is trying to help Florida residents and businesses recover from Bonnie and Charley.

Dear Readers,

How do you spell relief? Try I-R-S.

Florida residents now struggling to literally pick up the pieces of their homes and businesses following the one-two punch of Tropical Storm Bonnie and Hurricane Charley can at least put one concern on the back burner: the Internal Revenue Service. "We know you've got other things to worry about," said IRS spokesman Don Roberts.

Taxpayers in the 25 Florida counties that have been declared a federal disaster area* can take advantage of recently announced tax relief measures, such as the ability to postpone making certain payments and an automatic extension on filing their 2003 income tax return (the deadline for the rest of us was Aug. 16). Hurricane victims now have until Oct. 15 and late fees and any penalties that would ordinarily apply will be waived.

This extension also covers a number of other transactions, such as the amount of time you have to roll over a college savings account. Normally, when you switch from one state's 529 plan to another, you get 60 days to redeposit the money into the new account. But folks living in one of the affected counties have until mid-October to complete the transaction. The same applies if you are rolling over a Coverdell Education Savings Account.

Taxpayers in these counties also have extra time to use withdrawals they may have taken from their IRA accounts. Normally, taking a withdrawal from your traditional IRA before age 59 1/2 subjects you to a 10 percent penalty on top of the income tax due.** An exception is when the withdrawal is being used for the purchase of a "first-time home."† In this case, you're allowed to withdraw up to $10,000 from your IRA penalty-free. (Please note: this is a lifetime maximum.) The hitch is you've got to use the money — say, for a downpayment or toward the purchase price — within 120 days after it's distributed. This could present a problem if your local ATM — or your bank itself — has been destroyed by a hurricane. Once again, victims of Bonnie or Charley get a reprieve until Oct. 15.

Many of the tax relief measures apply to businesses. "Right now they just need to worry about getting back on their feet," said Roberts. He promises the IRS "can work with business owners" located in the disaster area on a number of tax-related issues. For instance, say your data was wiped out and you can't meet the regular Oct. 30 deadline for submitting payroll taxes. Just attach a letter of explanation when you file your employment tax return for this quarter.

Businesses and individuals also have the option of deducting casualty losses caused by Bonnie or Charley on either their 2003 or 2004 tax return. Including it on last year's return "gets you a faster refund," according to Roberts. "But," he added, "you might get a bigger tax break if you claim it for this year because your income could be lower due to the storms."

Anyone who already sent in their 2003 return can file an amended one. If your records have been lost or damaged, the IRS is making it easier — and faster — to get copies of previously-filed returns, and at no cost. You'll need Form 4506 to request a copy of any previous tax returns or Form 4506-T for a transcript.

To calculate your deductible loss if you're an individual taxpayer, first add up all of your casualty and theft losses for the appropriate tax year. Then subtract any insurance payments you received. Next, subtract $100 for each event that caused a loss. Finally, this amount is reduced by 10 percent of your Adjusted Gross Income (AGI).

For instance, say your 2003 AGI was $50,000 and Bonnie/Charley inflicted $80,000 in damages to your home. Your insurance company sends you a check for $60,000. Assuming this was your only casualty or theft loss of the year, here's what the math looks like:

$80,000 - total casualty/theft loss
 -$60,000 - insurance received
     -$100  - deduction per occurrence
   -$5,000 - $50,000 x 10 percent
  $14,900 - deductible loss

The key — whether you are an individual or a business taxpayer — is to write "BONNIE/CHARLEY" in red ink at the top of whatever paperwork you submit to the IRS to alert folks that you qualify for tax relief. Be careful: these special provisions only apply to folks in counties that have been formally designated federal disaster areas. If the storm surge flooded your restaurant along the South Carolina coast, you're out of luck.

You can learn more about these tax relief provisions by visiting the IRS Web site, www.irs.gov. If, despite following the instructions and submitting the appropriate forms, you're hit with penalties for filing or paying late, contact the IRS. They'll make the necessary corrections.

If you're reading this, you're alive. Hopefully, so are all of the people and pets you love and care about. Take a moment and be thankful for what these storms didn't take. Know that, with time, you can put your life back together again. And pass this message on to people you know are affected who may not be able to read it right now.

Take it slow .. and take care,


* These Florida counties official make up the federal disaster area: Brevard, Charlotte, Collier, DeSoto, Dixie, Duval, Glades, Hardee, Hendry, Highlands, Indian River, Lake, Lee, Levy, Manatee, Monroe, Okeechobee, Orange, Osceola, Pasco, Polk, St. Johns, Sarasota, Seminole, and Volusia.

** With a Roth IRA, "contributions" can be withdrawn at any time, tax and penalty-free. However, there's an "ordering" rule that determines how earnings are treated. Provided the Roth has been open for at least 5 years, there is no penalty or income tax on earnings that are withdrawn and used toward the purchase of a "first-time" home. The lifetime limit of $10,000 also applies.

† The IRS defines a "first-time homebuyer" as anyone who has not owned a home in the past two years.

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