Taxpayers who itemize deductions commonly ignore an advantage they have when incurring a casualty or theft. An amount of loss from these events is deductible. The steps to follow for this deduction depend upon the type of property and nature of the losses. This requires some special expertise that you can provide as a Registered Tax Return Preparer.
A loss incurred on personal-use property is limited to the excess over $ 500. Your income tax course teaches you that the $ 500 reduction is applied to each loss event, not every property item lost in a single event. After applying the $ 500 to each event, a total is derived. The tax deduction is the amount by which this total exceeds 10 percent of the taxpayer’s adjusted gross income.
You can see why taxpayers get confused about the calculation steps and are inclined to skip determining the deduction. But people value your tax preparation services because they rely upon your talent to remove the complexity and save them money. That’s why tax preparer jobs have become increasingly respected by the public.
Your tax training also permits you to apply special rules for casualty and property losses. For example, there are limitations for the deduction when property is a personal residence used partially for business or is property used in a passive activity. In addition, property used as an employee is deducted as unreimbursed employee expense instead of casualty and theft loss.
Deductible losses due to casualties and theft are fairly common.
Your job when you become a tax preparer is to help people capture the tax benefit from these situations. Casualty loss involves both total destruction and partial damage to property. The causes of these events must be sudden and unexpected. Gradual deterioration is not considered a casualty.
The knowledge you possess from obtaining tax preparer certification is therefore helpful anytime there’s a storm, fire, flood, or auto collision. A personal loss is the smaller of the taxpayer’s basis or the decrease in fair market value caused by the casualty or theft. The tax deduction cannot exceed the individual’s basis. For losses incurred on business property, only the basis is considered.
You have plenty of work to complete with a taxpayer who has a casualty or theft loss. Your calculations are required for determining basis and fair market value as well as reducing loss by the amount of any salvage value or insurance proceeds. This provides the taxpayer with a deduction that is likely overlooked without the input of your ability.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.