Posts Tagged ‘Itemized Deductions’

Deducting Medical and Dental Expenses

Wednesday, February 26th, 2014

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

Deducting Medical and Dental Expenses

 

If you plan to claim a deduction for your medical expenses, there are some new rules this year that may affect your tax return. Here are eight things you should know about the medical and dental expense deduction:

1.   AGI threshold increase.  Starting in 2013, the amount of allowable medical expenses you must exceed before you can claim a deduction is 10 percent of your adjusted gross income. The threshold was 7.5 percent of AGI in prior years.

2.   Temporary exception for age 65.  The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through Dec. 31, 2016.

3.   You must itemize.  You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction.

4.   Paid in 2013. You can include only the expenses you paid in 2013. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.

5.   Costs to include.  You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.

6.   Expenses that qualify.  You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. The cost of prescription drugs and insulin also qualify. For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses.

7.   Travel costs count.  You may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 24 cents per mile for 2013.

8.   No double benefit.  You can’t claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free.

Publication 502 is available on IRS.gov or you can order it by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

 

Now Is The Best Time To Begin Preparing Your 2013 Tax Return

Wednesday, April 24th, 2013

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

This is the best time of the year to start preparing for your 2013 tax return.  The new 2013 tax laws have already been signed in to law, you already know which  problems that you had in preparing your 2012 tax return, and by starting now you can avoid going through the same agony in 2014.  You should also avoid using the Scarlett O’Hara approach from “Gone With The Wind” – “Tomorrow’s another day!”   You could also think about the old adage – “Bad medicine is best when taken in small doses!”

The United States uses a pay-as-you-go approach for your annual tax liability.  You are expected to have on deposit with the U.S. Treasury one fourth of your annual income tax liability each quarter.  This requirement can be fulfilled using several methods such as payroll withholding, quarterly estimated tax payments, backup withholding etc. 

Organizing your records throughout the year is always important.  Having your tax return records easily accessible after December 31st will diminish your stress and reduce the time required to assemble these important documents.

Perhaps this is the time to begin using a tax professional to assist you in the preparation of your tax returns and to advise you regarding opportunities to reduce your tax liability.  The U.S. Congress has succeeded in passing income tax laws that are more difficult to comprehend and require an extensive degree of technical knowledge.  You should ask the tax preparer for an estimate of the cost for the preparation of your 2012 tax return.  Then divide the estimated cost by the total actual number of  hours which you spent accumulating records, extracting data, and preparing your tax return.    What was your conclusion?

If you will be changing your marital status in 2013, contact a CPA or tax attorney as soon as possible.  The Internal Revenue Service tests your marital (filing) status as of December 31st every year.  This is especially important if you plan to be divorced, marry, or separate.  Your final divorce decree or separation agreement does not supersede the provisions of the income tax laws!  If you are living in a “community property state” this task is even more important.  Additional information can be obtained from IRS Publication 504 (“Divorced or Separated Individuals”) or using this link:  http://www.irs.gov/publications/p504/index.html  (more…)

Should You Itemize or Utilize The Standard Deduction??

Monday, March 5th, 2012

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

This is an important decision to make each year, but there are several important requirements that have to be met throughout the year if you wish to have this choice.  A major consideration is adequate “record keeping”.  IRS Publication 552 provides some excellent guidelines for this requirement:  http://www.irs.gov/publications/p552/ar02.html   Additionally, the below information should be considered: 

You cannot use the standard deduction if:

  • You are married and filing a separate return, and your spouse itemizes deductions
  • You are a nonresident alien or a dual-status alien during the year, or
  • You are filing a tax return for a period of less than 12 months because of a change in your annual accounting method

In addition an estate or trust, common trust fund, or partnership cannot use the standard deduction. For additional information, refer to Publication 501, Exemptions, Standard Deduction, and Filing Information.

You may benefit from itemizing your deductions on Schedule A if you:

  • Cannot use the standard deduction
  • Had large uninsured medical and dental expenses
  • Paid interest or taxes on your home
  • Had large unreimbursed employee business expenses
  • Had large uninsured casualty or theft losses, or
  • Made large charitable contributions

  (more…)

Charitable Contributions

Tuesday, March 22nd, 2011

The comments in this article are related to individual taxpayers.  In addition to requirements set forth in Publication 526 (“Charitable Contributions”) businesses  should also review the provisions of Publication 542 (“Corporations”), including page 13 of the latter  publication for annual contribution limitations.

The first step in this process should include a review of Publication 78 (“Approved Charities”) and Publication 526 to determine if the organization to which you have donated, or plan to donate to, is an approved “charitable organization.”   Be sure to keep accurate records and supporting documentation as required by the regulations.

Additonal considerations and requirements are provided in the publications for:

  • “Acceptable” organizations and “unacceptable” organizations (Table 1, page 2 of Publication 526).
  • Appreciated capital assets (stocks, bonds, jewelry, stamps, coins, art etc)  tax savings can be achieved if you meet the requirements and donate these assets using their fair market value.  You do not have to first sell the asset, pay the capital gains tax, and then donate the cash.  Be sure to review the “Unrelated Use” requirement on page 12.
  • There are additional special rules and requirements if you donate a vehicle, boat or airplane (pages 8-11).
  • The value of your time, regardless of the amount and value, is not deductible.
  • There are limitations on the total amount of all charitable donations that can be made each year.  It is based on your “Adjusted Gross Income” and the type of donation.  The percentage limits are 20%, 30%, and 50%  See pages 13-15.
  • If you have exceeded the annual limitation for any tax year, the unused amounts can be carried forward in your tax return for the next five future years, if necessary.

I have observed a recurring situation for some clients in which they can not take a tax deduction for a contribution due to the tax laws.  This situation occurs when someone at work, church etc is in need of assistance.  Friends and family step up to the plate and come to the rescue.  However, the recipient is not an approved charitable organization and the donations can not be claimed.  Solution – donate to an approved charitable organization in that person’s name and have the charitable organization deliver the donations.  (more…)

2010 Tax Law Changes (Summary)

Tuesday, February 15th, 2011

Important Tax Law Changes for 2010

Taxpayers should make sure they are aware of many important changes to the tax law before they complete their 2010 federal income tax return.

Here are several important changes that the IRS wants you to keep in mind when you file your 2010 federal income tax return in 2011.

Health Insurance Deduction Reduces Self Employment Tax  In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their social security self-employment tax liability in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. But in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.

Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.

As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. Details, including a worksheet, are in the instructions to Form 1040.

First-time homebuyer credit You must meet the required deadlines to be eligible to claim the credit.  You must have bought — or entered into a binding contract to buy — a principal residence on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed or gone to settlement on the home on or before Sept. 30, 2010.   Because of the documentation requirements for claiming the credit, taxpayers who claim the credit on their 2010 tax return must file a paper — not electronic — return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and a properly executed copy of a settlement statement used to complete the purchase.

Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally begin repaying it on the 2010 return. In most cases, the credit must be repaid over a 15-year period. Many of those affected by this requirement received reminder letters from the IRS.

A repayment requirement also applies to a taxpayer who claimed the credit on either their 2008 or 2009 return and then sold it or stopped using the home as their main home in 2010. Use Form 5405 to report the repayment.

In addition, certain members of the armed forces and some other taxpayers still have time to buy a home and take the credit. See Form 5405 and its instructions for details.

Standard Mileage Rates for 2010 The standard mileage rate for business use of a car, van, pick-up or panel truck is 50 cents for each mile driven. The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 16.5 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

Tax Breaks Extended Several tax breaks that expired at the end of 2009 were renewed and can be claimed on 2010 returns. They include:

  • State and local general sales tax deduction, primarily benefiting people living in areas without state and local income taxes. Claim on Schedule A, Line 5.
  • Higher education tuition and fees deduction benefiting parents and students. Claim on Form 8917.
  • Educator expense deduction for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250, Claim on Form 1040, Line 23 or Form 1040A Line 16.
  • District of Columbia first-time homebuyer credit. Claim on Form 8859

For further information about these changes visit the IRS website at http://www.irs.gov or call 1-(800) 829-1040.