Plan for the next time?

How many times did you see a promotion for a seminar about disaster preparedness? How many times, when you saw such an advertisement, did you say, “When I have time, I will prepare for an emergency.” No one seriously thought that a flood would destroy businesses in June 2008.

How to do it.

It is not too late to prepare. Disasters come in all sizes and shapes: flood, fire, wind, tornado, sewer backup, flooding because of freezing pipes, and snow and ice storms. A quick-read plan can be found at the SBA's helpful site; click on “A Disaster Planning Guide for Small Business Owners.” For another, in-depth plan go to Institute for…Safety; click on “Programs,” then click on “Open for Business” and then on “Open for Business Toolkit.” Both are recommended reading for a business owner.

TAXES: Have an accountant check for surprises.

If your business suffered flood damage, have you asked your accountant or tax preparer what information he or she will need to report the gain or loss on your tax returns? Gain? That, of course, must be a typo, or a joke. How is it possible that a gain might be reportable by anyone suffering such a terrible loss? It is possible.

Suppose your business expensed all of your equipment and inventory purchases in prior years, your fixed assets have been fully depreciated, and you received a large payment from insurance to cover the fair market value of your business assets. Unless you reinvest all of the insurance proceeds in business assets, you may have a reportable gain. Even if you receive no insurance proceeds, you may not have a deductible loss if you have no basis in the destroyed assets. In any event, you will need documents to prove your basis. If your business records were destroyed by the flood, it is not too early to begin to reconstruct them. You need detailed records to prove a casualty loss.

Check the tax requirements yourself.

Go to the IRS website for additional information about this topic: www.irs.gov; click on “More Forms & Publications” and select Publication #2194-B, “Disaster Losses Kit for Businesses.”

If your prior year income tax returns were destroyed by the flood, and your tax preparer has no copies, you should immediately request copies of the returns by filing Form 4506 with IRS. Print “Cedar Rapids, Iowa, Flood” in red across the top of the form; it will speed up your receiving the copies and may waive the user fee.

Questions remain? Call SCORE®

Have you received any insurance settlements? Funds or grants from flood recovery programs? Have any tax related or future planning questions? If so, call the SCORE® office to set up an appointment with a counselor if you need some help.

Jean Kruse
SCORE® Chairperson and CPA (retired)

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We continue to be available to assist start-up or existing businesses at 2750 First Avenue NE, Suite 350 (Map).  Our phone number there is 319-362-6405, extension 2005.

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