Disaster doesn’t announce itself before it strikes. Natural disasters don’t just create havoc in communities but can cause serious damage to small businesses. The financial and physical cost of rebuilding your business can be overwhelming. Fortunately, the IRS and other financial arms of the government and individual states provide tax breaks and tax reliefs should your business be the unfortunate victim of natural disasters. From getting extended deadlines to receiving refunds and waivers, we can help you navigate through the tougher times.
A preventive plan on what you should do when disaster strikes can help in getting your business up and running again with minimal impact.
What qualifies as a natural disaster?
Before we dive into details it is essential to know what qualifies as Presidentially declared disasters:
…among others. When hit by a catastrophe, it’s always wise to consult your tax consultant or visit the IRS website and get information on the most recent tax relief provisions.
Covid-related tax reliefs
Given how many businesses are suffering during the pandemic, there are a lot of relief programs that have been created to aid people in need. The government offers breaks like Employee Retention Credit, paid leave credits, or the Coronavirus relief and tax exemptions.
For businesses suffering due to the pandemic, there are a lot of resources at your disposal to make sure your business stays afloat. Talk to your tax advisor about how you can benefit from these tax breaks.
Who can get tax relief?
If you are in a federally declared disaster area and have suffered a loss to your business, you may be eligible for financial aid. It’s that simple. But navigating through various provisions and breaks that apply to you can be overwhelming and tricky. Each relief has different eligibility criteria for which your tax advisor and the controller will be aware.. We always recommend getting professional help with determining the correct tax break to offset the impact of a disaster.
How to be tax prepared for natural disasters?
It may be harder to recover from the impact of a catastrophe if a preparedness plan is not in place. An actionable plan for before and after a natural disaster can save you panic, time, and help rebuild your business efficiently.
Understand the disasters that may affect you and your business. The potential natural disasters in California will be different from the ones that may hit in, let’s say, New York. If your business has branches or franchises, you could maintain a separate list for each location. Determine which functions of your business may be affected by the disasters. You could also reach out to your local governing body or the SBA for their assistance and crisis counseling.
Gather documents and records
Take stock of all your financial documents and data and ensure they are updated. Always back up your data to the cloud – this will ensure that whatever document you need for your business post-crisis that you have a digital copy. Saving hard copies in a secure location, away from the location of your business, is also a good business practice. These financial documents will help you in loan applications, IRS tax breaks, and claiming government benefits.
Do not forget to save proofs of your office supplies and inventory – photograph, or videotape all your tangible equipment, keep purchase receipts. This will help in making insurance claims. The IRS has a workbook that can help you compile a list and prove the value of your items.
Having the right insurance is an integral step in your disaster preparedness checklist. When you select your insurer, check if they cover the natural calamities that may affect you. If a type of disaster does not fall under your insurance, you could always add on additional coverage for a premium. Talk to your agent to understand what your policy covers and if the premiums and deductibles fall in your business budget. Generally, opting for an insurance policy that is easily claimable and with a quick payout to ensure a faster recovery is helpful but you should have your broker walk through the options in detail.
Disaster response plan
A critical aspect to consider in creating a disaster management plan is to safeguard your office premises, equipment, and your employees. Create a communication plan to share with your customers and vendors to let them know your plan of action for during and after the catastrophe. Conduct drills to ensure your employees are crisis prepared in case of evacuations. At least once a year, test and update these plans.
Keep all government resources at your disposal, the Office of Disaster Assistance has a checklist to prepare for all kinds of emergencies.
Plan to recover
Immediately after the strike activate your crisis recovery plan that includes connecting with the employees, filing insurance claims, and measuring the impact.
Start with assessing your employees’ needs. Check if they need help to claim any corporate employee insurance or benefits. Your employees would like to know about payroll and salaries, be realistic and honest. Communicate your restoration and business stability plan to your employees, vendors, and customers. It may also help reconsider your needs and check if they match with your insurance coverage.
Evaluate the physical damage to your property and equipment. Match it with your inventory list and understand what damages are to be claimed. If you start repairs, keep receipts to claim in your insurance. You should also request a copy of invoices from your vendors, bank statements, and tax returns including the form W-2 from the IRS. The IRS advises businesses to get copies of these documents dating back at least one calendar year.
Reach out to your tax and accounting advisor
Review your financial condition. Your accountant and controller can help you organize and reallocate your budget. They can also help you evaluate recovery funds, whether it is your contingency fund or short-term loans/grants (Covid-related and otherwise) that you may require to rebuild your business after a disaster.
Talk to your CFO (consult with an interim CFO, in case you don’t have one) about immediate and long-term financial recovery goals and analysis.
There are various tax breaks of which you can take advantage. Your tax consultant can advise you on your eligibility for the various tax breaks. We have already mentioned the ERC – a tax credit against certain payroll taxes. You could also be eligible for paid leave credit – a tax credit for offering paid leaves to employees to recover from a crisis like quarantine during Covid-19.
Your tax advisor may also encourage you to take the advantage of the state-sponsored penalty and interest waivers or extended deadlines from the IRS to file your returns. The IRS also allows tax-free assistance to your employees on financial aids received after the disaster.
We understand how overwhelming it can be to recover and scale your business after being hit by a natural disaster. To ensure you are leveraging all resources and help available to you, talk to your tax advisors. They can help you streamline your claims and meet the deadlines in time. Rooled’s tax and accounting experts are fully equipped to help you through the process and emerge stronger and efficient.