Thursday, February 9, 2012

HOW DO YOU TREAT PUBLIC ADJUSTER’S FEES?

HOW DO YOU TREAT PUBLIC ADJUSTER’S FEES?

What are the income tax consequences of payments made to the public adjusters?
Public adjusters are professionals who work for the person who has experienced the loss, not the insurance company. Most individuals are fully capable of dealing with the process of settling their insurance claim. But sometimes it is a question of time. Maybe there are complexities of the claim that a professional can assist the insured in arriving at an equitable result.
What are the possible ways to treat the payments to public adjusters? Here are possible thoughts, many will be eliminated.
1. Deduction as part of a casualty loss – no.
2. Deduction as a miscellaneous itemized deduction – maybe.
3. Ignore in any calculations – no.
4. Offset against insurance proceeds – most likely.
Do you have another possibility?

LET’S LOOK CLOSER.
1. Deduction as part of a casualty loss – no.
To understand this choice we have to look at the original event, the fire, the flood, the tornado, the earthquake.
The extent of the loss ended with the fire was extinguished, the earth stopped moving, and the storm subsided. After the loss has stopped the taxpayer is in the recovery phase. Hiring a public adjuster is part of the recovery process.

2. Deduction as a miscellaneous itemized deduction – maybe.
The IRS and courts look to the source of the claim. In this case the claim is against what is the taxpayer claiming a deduction or an offset? If the claim is the insurance collections that the public adjuster secured for the owner, then that would indicate the source of the claim (see # 4).
In some cases, there may not be any insurance and the taxpayer hires a public adjuster to assist in developing the loss deduction for tax purposes. In that instance, the fee paid would be a miscellaneous itemized deduction for a taxpayer reporting on a Form 1040. For a business return, it would be an expense, separate from the loss deduction.

3. Ignore in any calculations – no.
Well of course you should not ignore it. But if you are the taxpayer and you have a professional tax preparer assist you in the preparation of your return, you should make sure that you bring the fees paid to the public adjuster to the tax preparer’s attention.

4. Offset against insurance proceeds – most likely.
Going back to the source of the claim, here is an example of how to deal with the fees paid to a public adjuster:

Category
Gross Proceeds Secured by Public Adjuster
Public Adjuster Fees Paid (10% of Proceeds)
Net to be dealt with as proceeds




Real Estate
$70,000
$7,000
$63,000
Personal Property
20,000
2,000
18,000
Additional Living Expenses
10,000
1,000
9,000
TOTAL
$100,000
$10,000
$90,000


March 2014: New  Information

Additional Help for Taxpayers Recovering From a Catastrophic Loss

An organization with over twenty years experience assisting people who experience catastrophic event, United Policyholders (UP) offers many useful programs. If you need additional assistance and have not seen the  UP website, here is a link:
For a general link to the UP website use this link: http://www.uphelp.org/





All rights to reproduce or quote any part of the chapter in any other publication are reserved by the author. Republication rights limited by the publisher of the book in which this chapter appears also apply.


JOHN TRAPANI


Certified Public Accountant


2975 E. Hillcrest Drive #403


Thousand Oaks, CA 91362


(805) 497-4411       E-mail John@TrapaniCPA.com




Blog: www.AccountantForDisasteRrecovery.com


It All Adds Up For You



This material was contributed by John Trapani. A Certified Public Accountant who has assisted taxpayers since 1976, in analyzing and reporting transactions of the type covered in this material.  
Internal Revenue Service Circular 230 Disclosure
This is a general discussion of tax law. The application of the law to specific facts may involve aspects that are not identical to the situations presented in this material. Relying on this material does not qualify as tax advice for purpose of mounting a defense of a tax position with the taxing authorities
The analysis of the tax consequences of any event is based on tax laws in effect at the time of the event.
This material was completed on the date of the posting
© 2012, John Trapani, CPA,

2 comments:

Janey said...

I was actually wondering this very question today, and my friends were not very helpful in answering it. My parents just experienced a tragedy, and were thinking of hiring a public adjuster. They wanted to make sure they understood everything about it, though, which is where your post comes in handy :)

Kurt Cooks said...

I have been trying to learn more about tax deductibles and see how I can make the most of them. Thank you for the tips about certain things that affect it! This should help me when I am filing for taxes next time. http://www.childrenofportauprincehaiti.org