Spring is just around the corner, and with it comes the dreaded tax season. In Louisiana and other hurricane-ravaged states in the Gulf Coast, Hurricane Katrina has made the already complex tax laws even more intricate.
While that doesn't make this easier for the filers, it does create more business for the tax preparers. Local CPA Cylde Trevathan said, "I think we are seeing a good bit of traffic flow caused by complexity of the tax laws now that you have added another layer, the Katrina Layer, to the already confusing tax laws."
"One thing that is different this year is the Causality Loss from Katrina. What people need to understand it is an itemized deduction, if it is on your personal property," said Trevathan. "You can actually take your deductible and any depreciation that insurance companies have not paid you for and that becomes an itemized deduction."
Trevathan said that savings can be substantial, but added that is only if the tax filers are itemizing.
For example, if the homeowner has $25,000 worth of damage with a $2,000 deductible and the insurance company has depreciated the original $25,000 by another $2,000, thus paying the homeowner $21,000, the $4,000 out of pocket can deducted as a causality loss.
In St. Charles Parish, where many residents have taken in friends and family, another addition that they may take advantage of this year is the exemption for housing people for at least 60 days; it is called a Dependency Exemption. While the normal exemption is $3,000, an additional $500 per person, up to 4, staying with the homeowner, meaning a potential savings of $2,000.
In order to take advantage of this exemption, "You have to have their name, address before the storm, social security number and the number days that they stayed with you," said Trevathan.
In terms of businesses, Trevathan said that they could also use the causality loss, but for the business it is not an itemized deduction.
Two more tax credits for businesses are for the hiring and retention of employees during Katrina. Employees hired after the storm are covered under the Work Opportunity Credit. According to Trevathan, the business owner is able to claim 40 percent of up to $6,000 in salary for each employee, allowing a maximum $2,400 in credits.
"The other is the Katrina Employee Retention Credit, which basically says all employees that you have retained after Katrina, up to the time that the business owner has resumed substantially normal operations," said Trevathan, adding that same credit amount applies as the Work Opportunity Credit. This rewards those that have stood by their employees during the hardship of Katrina.