Proposed Law to Increase Tax Relief for Tornado-Hit Areas
In 2011, many states, especially in the South Eastern side of the United States, have experiences seasons of bad weather including storms and tornadoes. The severe impact of bad weather has continued to bear untold suffering to the victims. However, in a move to provide some relief for these victims, the senators from these hit areas are now proposing a tax relief law. The law will provide added tax credits, exemptions, and deductions to taxpayers in the regions. The bill, Southeastern Disaster Tax Relief Act of 2011, has been proposed by Alabama Republican Senator, Richard S. Shelby and backed by other senators from affected areas including Kay Hagan (Democrat – North Carolina), Mark Pryor (Democrat-Ark.), Saxby Chambliss (Republican-Ga.), James Inhofe (Republican-Okla.), Thad Cochran (Republican-Miss.), Johnny Isakson (Republican-Ga.), Claire McCaskill (Democrat-Mo.), and Roy Blunt (Republican-Mo.).
Similar Prior Laws
The bill has been fashioned in a similar way as other past laws that were created in an effort to provide relief to victims of bad weather. These laws include the Heartland Disaster Tax Relief Act of 2009, Southern Kansas Tax Relief Act of 2008, the Gulf Opportunity Zone Act, and Katrina Emergency Tax Relief Act.
Tax Relief Proposed Through the bill
The Southeastern Disaster Tax Relief Act of 2011 has proposed a wide range of tax relief provisions to the victims of the tornadoes that hit the South Eastern regions of the U.S. These provisions are listed below:
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- Withdrawal from Retirement Funds with no Penalties- Under the proposed bill, victims of the bad weather can withdraw up to a combined amount of $100,000.00 from their retirement funds including IRAs and annuities without paying a penalty.
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- Earned Income Tax Credit (EITC) and Child Tax Credits (CTC) from Previous Years – Since many of the victims lose their jobs from the disasters, the bill proposes that victims be paid the EITC and the CTC from previous incomes made.
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- No Cap for Donation Deductions – Usually, taxpayers are allowed to deduct contributions to qualifying charities to a maximum of 50% of their earnings. However, under the proposed law, taxpayers can donate beyond the 50% cap and still get full deductions for their contributions.
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- Increased Casualty Loss Relief – The casualty loss relief is an itemized deduction and thus, a deduction is made of the excess of 10% of one’s Adjusted Gross Income. However, under the Bill, this 10% limitation will be removed for the aforementioned victims.
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- Additional Education Tax Relief – The Hope irs relief Credit cap would be increased to $3,000.00 and the Lifetime Learning Credit would be increased from 20% to 40%; a cap of $4,000.00.
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- Tax Exemption for Displaced Homes – Victims of the bad weather who get displaced from their homes would get further tax relief of $500.00 for each individual.
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- No Taxation for Debt Cancellation – Any victim who gets his or her debts canceled by a financial institution because of the bad weather would not pay tax for the canceled debt under the proposed law.
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- Tax Credit for Small Businesses that Keep their Employees – The bill proposed that small businesses that continue to keep paying their employees, even after bad weather hurts their businesses, would get a 40% tax credit. This credit will only be eligible to employers with less than 200 employees.
- Write Off for Demolition Costs – Businesses would also be allowed to account any demolition costs due to the bad weather as an operational expense as opposed to accounting it as a capital expense. This means that the business can deduct the whole amount of the demolition in the same year as opposed to capitalizing the expense and depreciating it over several years.