As the California fire and storm seasons become more of a year-round string of disasters, the challenges for state budget writers and tax practitioners are stretching into a year-round cycle, too.
The federal and state governments declared disasters soon after the Palisades and Eaton fires started in Los Angeles in early January, giving victims access to a host of aid measures for cleanup and recovery, including postponed tax filing deadlines. By the time the fires were contained, they destroyed more than 16,000 structures, damaged 2,000 more, and killed 29 people.
Filing tax returns may be the last thing on the minds of those who lost their homes, businesses, or loved ones. But tax practitioners and state budget writers are thinking about the fires’ impact on taxes while they work to ease the burden on disaster victims.
At the state level, postponed tax filing deadlines make budgeting tricky for the coming fiscal year, on the heels of unprecedented postponements due to a series of storms around the state in winter 2023.
“A delay in filing—for all the understandable and proper reasons—makes revenue forecasting that much more difficult,” California Department of Finance spokesperson H.D. Palmer said. “Less so than for the winter storms, but significant nonetheless because it’s L.A. County.”
For tax professionals, relief in the form of postponed filings stretches the work far beyond the typical tax season and makes them lifelines for clients who have lost everything, practitioners said in interviews.
“They’re so traumatized they can’t even think straight,” Sandra L. Danioth-Jones, an enrolled agent in Novato, north of San Francisco, said in an interview. “We take them by the hand and walk them through the process.”
Tax relief for the fire victims gives them until Oct. 15 to file and pay federal and state income taxes normally due between now and then. Businesses get more time to file and remit state sales tax. Property owners won’t face penalties or interest for late property tax payments and can file claims to reduce their assessed values.
The tax impact isn’t as broad as 2023, when winter storms resulted in disaster declarations and postponements in almost all of of California’s 58 counties. That meant 99% of California taxpayers had until November 2023 to file and pay taxes on their 2022 income.
Still, about 20% of the state’s personal income tax liabilities and 28% of corporate income tax liabilities come from Los Angeles County, according to the Department of Finance. More than 30% of payments from business entities using the elective pass-through entity tax to get around the $10,000 federal cap on state and local tax deductions come from Los Angeles County. Not all of Los Angeles is part of the disaster zone, but it’s a significant portion of the county nonetheless.
Palmer said the tax postponements due to the Los Angeles fires won’t have an impact on state revenue. But similar to 2024’s storm-related postponements, the department will have to forecast revenue and finalize the state budget for the next fiscal year without a complete picture from the year’s biggest tax day, April 15.
It is unclear if the delay in payments has already depressed income tax collections, Jason Sisney, budget adviser to Assembly Speaker Robert Rivas (D), wrote in a Feb. 12 post on Substack. January income tax collections of $710 million were 3.4% below projections.
“Many high-income Los Angeles taxpayers delayed their January tax payments, which may have accounted for much, if not most, of the monthly shortfall,” he wrote. “The payment delay for Los Angeles County mainly benefits high-income taxpayers, not working people who pay income taxes via payroll withholding.”
Overall, state revenues are ahead of projections, and California has $110 billion in “cash and cash equivalents” on hand, making its cash position at the end of January one of the strongest ever recorded by a subnational government, Sisney said.
Fires, winter storms, and the Covid-19 pandemic in recent years have forced certified public accountants, enrolled agents, and other tax professionals to adapt, said Danioth-Jones and Miklos Ringbauer, a CPA with offices in downtown Los Angeles and Orange County.
“Business is no longer usual,” Ringbauer said. Most firms, especially smaller ones with enrolled agents or CPAs, “are trying to adapt to this new environment where it is essentially year-round tax season.”
Firms—and their clients—are encouraged to keep records in the cloud or someplace safe, they said. Some firms or their employees are among those that lost everything in the fires, and they must be prepared to sustain operations in case of catastrophe, Ringbauer said. Some people who lose their homes don’t even have a computer to access their records, Danioth-Jones said.
Both said they reach out to clients who live in disaster zones to let them know they’re ready to help. Having a power of attorney on file with the IRS and California Franchise Tax Board allows them to rebuild records and access transcripts for their clients. Cases with disaster losses take more time and are “quite emotional,” Danioth-Jones said.
“We know where they live, where their business is,” Ringbauer said. “We’re reaching out to those clients specifically upfront to say, hey, we know there’s a lot of things that are happening. We got you.”
The North Bay Enrolled Agents and members of the California Society of Enrolled Agents created a website to gather information for victims and preparers.
The 2017 Tubbs Fire, which destroyed more than 5,000 structures in Northern California, was a wake-up call because because it deviated from blazes that, historically, spread in rural areas to consume more than 1,000 homes in the suburban neighborhood of Coffey Park, in Santa Rosa, Danioth-Jones. One of her clients’ homes was among those.
“It can happen anywhere,” she said. “We might be looking at the new normal.”