Seattle adopts tax on certain compensation exceeding $1 million
Seattle voters approved a 5% tax on 2025 pay over $1M for Seattle-based employees to fund affordable housing, effective January 1, 2025.
California provides taxpayers disaster relief in response to recent wildfires
February 2025
In brief
What happened?
On January 11, Governor Gavin Newsom (D) followed the federal announcement and declared the recent wildfires in Los Angeles County as disasters, qualifying affected individuals and businesses for tax relief. Gov. Newsom’s announcement indicated that affected taxpayers would be eligible for extensions for the payment of certain taxes and the filing of returns.
As a federal disaster, the Internal Revenue Service published similar relief for affected taxpayers, as discussed in our Insight, Tax considerations for property damaged in federally declared disasters.
Why is it important?
The extension of time to file and pay California taxes may provide taxpayers with welcome relief for upcoming state compliance deadlines, including the payment of certain taxes and estimated payments. As a federally declared disaster, taxpayers also should be aware of additional California tax considerations, such as claiming disaster loss deductions on 2024 tax returns.
Actions to consider
For many in the affected area, the financial impact resulting from the wildfires is significant. Individual and business taxpayers should be aware of the California tax relief provisions that may be available to lessen the financial impact. It should be noted that careful planning and detailed records are necessary to accurately substantiate losses, recoveries, and reinvestments.
In detail
Who qualifies for relief
The wildfires in southern California caused significant personal and business losses for many in the affected area. Taxpayers, which include individuals, corporations, estates, trusts, partnerships, and other business entities, located in Los Angeles County that are affected by the wildfires may be eligible for state disaster relief.
Extension of time to file and pay
Aligning with the federal extensions, taxpayers located in Los Angeles County are provided a postponement to October 15, 2025, to file 2024 California income tax returns and make any tax payments that would have been due January 7, 2025, through October 15, 2025. These relief provisions include:
- Individuals whose income tax returns and payments are normally due on April 15, 2025.
- Quarterly estimated income tax payments normally due on January 15, April 15, June 15, and September 15, 2025.
- Business entities whose corporate or pass-through entity income tax returns are normally due on March 15 and April 15, 2025.
- Pass-through entity (PTE) elective tax payments normally due on March 15 and June 15, 2025.
- Tax-exempt organization returns normally due on May 15, 2025.
Qualifying disaster losses
California generally follows IRC Section 165, which provides a deduction for casualty and disaster losses resulting from damage or destruction of property attributable to an event such as a fire, flood, earthquake, or similar event that is sudden, unexpected, or unusual and such loss is not reimbursed by insurance or otherwise. In California, a casualty loss is classified as a disaster loss when:
- The loss is sustained in an area the President of the United States or the Governor of California declares a state of emergency, and
- The loss is because of the declared disaster.
It should be noted that California’s conformity to IRC Section 165 is set as of January 1, 2015. Thus, under California law personal casualty or theft losses are deductible for individual taxpayers to the extent they exceed $100 per casualty or theft, and aggregate net casualty and theft losses are deductible only to the extent they exceed 10% of an individual's adjusted gross income. Businesses do not have a similar limitation.
When can disaster losses be claimed
Generally, a loss is deducted in the year it is sustained, i.e., the “disaster year.” However, in certain circumstances the loss can only be deducted in a year after the disaster. For example, if in the year of the disaster a taxpayer has a claim for reimbursement with a reasonable prospect of recovery, then the taxpayer would not be able to deduct the loss and would only be able to deduct the loss in a subsequent year if the taxpayer later discovers that there is no longer a reasonable prospect of recovery.
Taxpayers also may elect to claim a disaster loss on the immediately preceding tax return. This election may provide a significant benefit as it accelerates the timing of the deduction for the loss to either decrease an existing tax liability or possibly provide an accelerated refund. For many individual taxpayers affected by the fires, the disaster year will be 2025 and they may elect to take the casualty loss deduction either in 2024 or 2025. In this case, the election must be made by October 15, 2026 (the extended due date for the 2025 tax return). For corporate taxpayers that would like to claim the loss deduction for the 2024 tax year, the corporate taxpayer can either claim the deduction for the loss on the original 2024 tax return or an amended 2024 tax return that is filed by the extended due date for the 2025 return.
Substantiating the disaster loss
Disaster losses, like other deductions, must have records to substantiate amounts reported on the return. In addition to the forms noted below, taxpayers must maintain detailed records of property and partial reimbursements for which losses are claimed. As noted by the Franchise Tax Board guidance, it is a best practice to take and keep photos or videos of the damaged property to document the loss.
With respect to the process of claiming the loss on a return, California requires taxpayers to indicate at the top of the return the name and date of the disaster for which the loss is being claimed. Additionally, taxpayers will need to attach the following California forms, if applicable:
- Schedule D-1, Sales of Business Property
- Form FTB 3805V, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – Individuals, Estates, and Trusts
- Form FTB 3805Q, Net Operating Loss (NOL) Computation and NOL and Disaster Loss Limitations – Corporations.
Taxpayers also are required to attach a copy of Federal Form 4684, Casualties and Thefts, but reflecting California amounts in addition to copies of their federal tax returns.
As individuals and businesses start the process of determining the financial impact of the disaster, understanding the tax impact may help affected taxpayers navigate complex tax implications so they can consider the tax relief they may be entitled to at the state level.
Similiar Insights
Loading...
Senate approves amendments to Housepassed budget plan for tax
Senate approves amendments to House-passed budget plan for tax and spending reform legislation.
Trump unveils plan for imposing reciprocal tariffs on trade partners
Trump's April 2 order imposes 10% base tariffs and higher reciprocal rates on imports from select countries, targeting unfair trade practices.
Accounting Methods Spotlight Q1 2025
In our first quarter newsletter, we discuss a number of recent developments and guidance on tax accounting methods and energy credits.
Loading...
Contact us
Follow us
