While being a business owner has its rewards, it also spawns a laundry list of strenuous duties and responsibilities. It’s no wonder entrepreneurs shove some crucial matters, such as disaster preparation, to the back burner. In fact, 68% of small business owners don’t even have a written disaster recovery plan, and 21% of these owners believe a disaster plan isn’t a high priority. If you possess this “it-will-never-happen-to-me” attitude, you need to reevaluate your mentality.
We’re going to go over a few precautionary steps that your small business can – and should – utilize when catastrophe strikes, as well as what do during tax preparation.
What Your Small Business Needs to Do
Running your business without any sort of insurance is just like playing with fire – you’re bound to get burned. Commercial property insurance is essential for covering your business assets in the case of a natural disaster or an unforeseen event such as vandalism and theft. With this insurance, the workspace your business owns or leases is protected, as well as property such as outdoor signs, furniture, equipment, and inventory.
To guarantee more protection, you can add business interruption insurance (also known as business income coverage) to your policy. This can help compensate your business’ loss of income after a catastrophic disaster. For example, if your manufacturing facility is destroyed by a tornado and all operations shut down for six months, you can still pay salaries, rent, and other expenses during the recovery period.
Set Up a Disaster Recovery Plan
According to the Institute for Business and Home Safety, 40% of small businesses never reopen after severe weather events. Don’t be part of the statistic. The more prepared you are, the more likely you are to salvage your business. Your plan should address subjects such as life safety measures, off-season procedures and contact information among others.
Not sure where to start? The IBHS offers free tools and resources to help organize your disaster recovery plan.
If your workplace is cluttered wall to wall with filing cabinets, it’s time for a renovation. Take advantage of 21st century technology and electronically scan and transfer your financial records and other vital documents to the internet.
ClientBooks, our cloud-based bookkeeping system, is a perfect solution to prevent your business’ paper trail from washing away or disintegrating into ashes. With ClientBooks, you can easily upload documents from your phone or by taking a photo in the app. Plus, you can connect your bank account and credit card information so your transactions are documented on the go.
What to Do for Tax Preparation
If your business endures a disaster, you may be able to receive tax deductions for casualty losses, which the government defines as damage to property due to a sudden event. However, you must prove to the IRS that you’re the rightful owner of the property. If your business is insured, you must notify the IRS of insurance reimbursements you received or plan to receive. The IRS provides Publication 584-B for recording your business’ inventory, furniture, equipment, supplies, etc. They also require you to report your casualty losses during the year they occurred via Form 4684.
It’s important to note that you cannot claim casualty tax losses unless your loss is more than 10% of your adjusted gross income. Insurance reimbursements and an additional $100 must also be deducted from the total amount you are claiming to receive your casualty loss deduction.