Tax Relief for California Wildfire Victims: What Tax Professionals Need to Know
The IRS has announced significant tax relief measures for victims of the January 2025 California wildfires and straight-line winds, primarily affecting Los Angeles County. Here’s what tax professionals need to know to serve their affected clients.
Scope of Relief
The relief applies to any area designated by FEMA under declaration number 4856-DR. While currently limited to Los Angeles County, practitioners should monitor IRS.gov’s disaster situations page for potential additions to the covered areas.
Key Deadline Extensions
The IRS has established October 15, 2025, as a universal deadline for various filings and payments originally due between January 7 and October 15, 2025. This comprehensive extension covers:
Individual Returns and Payments:
- 2024 individual tax returns and payments (normally due April 15, 2025)
- 2024 IRA and HSA contributions
- All four quarters of 2025 estimated tax payments
Business Returns:
- Calendar-year partnership and S corporation returns (originally due March 17, 2025)
- Calendar-year C corporation returns (originally due April 15, 2025)
- Various quarterly payroll and excise tax returns
Critical Practice Points
Automatic Relief Implementation:
The IRS automatically applies relief to taxpayers with addresses of record in the disaster area. However, practitioners should note two important exceptions:
- Clients who recently moved to the affected area may need manual intervention. If they receive penalty notices, they should call the IRS at the number provided for abatement.
- Clients outside the disaster area whose tax records are within it qualify for relief but must proactively contact the IRS at 866-562-5227.
Bulk Relief Requests:
Tax professionals serving clients outside the disaster area can utilize the Bulk Requests from Practitioners for Disaster Relief option on IRS.gov, streamlining the relief process for multiple affected clients.
Loss Reporting Flexibility:
Practitioners have important planning opportunities regarding disaster losses:
- Losses can be claimed either on 2024 or 2025 returns
- The election deadline extends to October 15, 2026
- Returns claiming losses must reference FEMA declaration number 4856-DR
Retirement Account Considerations:
Special provisions apply to retirement accounts:
- Disaster distributions avoid the 10% early withdrawal penalty
- Income from distributions can be spread over three years
- Hardship withdrawal rules may be relaxed
Payroll Tax Deposit Relief:
A specific provision abates penalties for late payroll and excise tax deposits due January 7-22, 2025, if made by January 22, 2025. This requires careful attention to timing and documentation.
Planning Opportunities
1. Income Timing Strategy:
Analyze whether claiming losses in 2024 or 2025 better serves your clients’ tax situations. Consider:
- Current versus anticipated future tax rates
- Impact on other tax benefits
- Cash flow needs
2. Qualified Disaster Relief Payments:
Help clients identify excludable payments received from government agencies for:
- Personal and family expenses
- Home repairs
- Content replacement
3. Retirement Planning:
Evaluate whether clients would benefit from:
- Special disaster distributions
- Three-year income spreading
- Hardship withdrawals
Documentation Requirements
Maintain thorough records for:
- Proof of residence in the disaster area
- Evidence of losses claimed
- Support for excluded disaster relief payments
- Retirement plan distribution documentation
Next Steps for Practitioners
- Identify all clients in or connected to the affected areas
- Review upcoming filing deadlines against the relief provisions
- Document all relief-related decisions and elections
- Monitor IRS.gov for additional guidance and area designations
- Consider bulk relief requests for applicable clients
Remember that while automatic relief applies to most affected taxpayers, proactive management of special situations and strategic planning can significantly benefit your clients during this challenging time.
* This analysis is based on IRS announcements as of January 2025. Tax professionals should monitor for updates and additional guidance.