Posts Tagged ‘Tax Deductions’

Medical and Dental Expense Tax Deductions

Tuesday, February 14th, 2012

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

Eight Things to Know about Medical and Dental Expenses and Your Taxes 

 

If you, your spouse or dependents had significant medical or dental costs in 2011, you may be able to deduct those expenses when you file your tax return. Here are eight things the IRS wants you to know about medical and dental expenses and other benefits.

1.   You must itemize   You deduct qualifying medical and dental expenses if you itemize on Form 1040, Schedule A.

2.   Deduction is limited  You will only receive a tax benefit deduction for all of the total medical care expenses that exceed 7.5 percent of your adjusted gross income for the year.  You figure this on Form 1040, Schedule A.

3.   Expenses must have been paid in 2011   You can include the medical and dental expenses you paid during the year, regardless of when the services were provided. You’ll need to have good receipts or records to substantiate your expenses.

4.   You can’t deduct reimbursed expenses   Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5.   Whose expenses qualify   You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement or those with a qualifying relative who is not your child.

6.   Types of expenses that qualify   You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

7.   Transportation costs may qualify   You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. You can deduct the actual fare for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 19 cents per mile for 2011.

8.   Tax-favored saving for medical expenses   Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.

For additional information, see Publication 502, Medical and Dental Expenses or Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

  • Publication 502, Medical and Dental Expenses (PDF)
  • Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans (PDF)

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Medical and Dental Expenses

Are The Costs for Summer Day Camps Tax Deductible?

Thursday, July 14th, 2011

The summer months are traditionally some of the best times of the year for those who are 18 and younger.  However, these school vacation months  can present some special “challenges” for parents, especially if both are working full time jobs.  Parental creativity usually will provide several different solutions, including trips to visit with the grandparents, relatives, friends, neighbors etc.  Other alternatives include an extended two to three week trip to Camp Woodchuck or it can just be a daily visit to one of the local “day camps” that are located nearby.  If you have selected the last option for your children, some of the costs may be deductible on your income tax return.

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Are Your Home Office Expenses A Tax Deduction?

Wednesday, March 16th, 2011

Note:  A related discussion on this topic appeared on January 12, 2011 under the topic “Are You Planning To Start A New Business?”  The contents of this article are not intended to duplicate the information which was previously provided.  There is additional, new information provided below. 

From an “Overview” perspective, If qualified, making a decision regarding whether to claim the expenses for the use of your home for your business operations is a continuing issue and a problem for both American taxpayers and the Internal Revenue Service.  As you may have already concluded, there are far too many instances of fraud and abuse by those taxpayers who are clearly not entitled to the deduction.  It is also a potential “red flag” area that could cause your tax return to be examined and audited.  In summation, if you meet the requirements and qualifications then claim the deduction.  Otherwise, you are paying too much in income taxes.  If you do not meet the requirements and qualifications, don’t even think about it! 

Prepare a letter or memorandum for your records that includes both the requirements and your rationale for meeting these requirements.  Include all of your supporting documents, i.e. a copy of your appraisal, HUD 1, etc.  Keep them in a safe place or save them on your hard drive.  These documents will be invaluable IF your tax returns are audited. Be sure to review the “Recordkeeping” requirements on page 18 of IRS Publication 587 (“Business Use of the Home”).

If you do meet the requirements, there are additional points which you should know, including:

  1. The simplest method to determine the relative percentage of your home that is devoted to your business office is to divide the total square footage of your office by the total square footage of your home, i.e. 200/2,400 = 8.3%;
  2. There will usually be both “direct” (i.e. a second telephone line, Internet connection, repairs to your office) and “indirect” (i.e. insurance, taxes, mortgage interest, utilities etc) expenses on your tax return (Form 8829).  “Indirect” expenses require the use of the percentage which was calculated in #1 above;
  3. “Depreciation” – only the cost of your home is included in the cost basis and not the land.  Read pages 10-11 (“Depreciating Your Home” ) in IRS Publication 587 for specific guidance and procedural steps;
  4. Additional information on this subject can be obtained from reading IRS Topic 509, “Business Use of the Home” which is available via this website link(more…)

Tax Deductions for the Business Use of A Car

Saturday, February 12th, 2011

If you  are using your personal automobile for business purposes, either as an employee or a business owner, you should understand the requirements for claiming this deduction.  IRS Publication 463 (“Travel, Entertainment, Gift and Car Expenses”) provides all of the important guidelines.  You can also use your search engine or go to the IRS website (http://www.irs.gov) and search using “car expenses” to obtain a list of Tax Topics that will provide additonal information and guidance.  Among the important topics to review, depending on your situation, are:

  • Local and travel and travel away from your business home
  • Categories of travel – personal, commuting, and business
  • Standard mileage rate vs. actual expenses (including the major expense categories for the deduction)
  • Leasing a car (special rules apply)
  • Disposition (sale, trade, etc) of the car
  •  Parking fees and tolls, tax credits
  • Advertising on the car
  •  Transporting tools and instruments
  •  Union member’s trips from the union hall
  •  Work location (temporary, multiple, no regular place, Armed Forces reservists)
  •  Car pools
  •  Office in the home
  •  Requirements for car expenses

Insofar as the acceptable deduction expense methods are concerned, you are allowed to use either 1) the actual expenses which were incurred during the tax year or 2) the IRS standard mileage rate ( $ .51/mile in 2011).  This rate is applicable for any and all automobiles.

There are two methods which can be used to determnine the deduction for your business driving costs: the actual expense method or an IRS-set standard mileage rate.    

  • Actual expense method.  You should keep accurate receipts and records for all of your automobile expenses.   Business  costs must be kept separate from personal and commute costs;  
  • Standard mileage rate. If accurate recordkeeping is too difficult you may also use this method to determine your deductible costs. The standard mileage rate replaces the “actual expense method” for determining the costs of gasoline, oil, repairs, lease payments (if you lease), depreciation (if you own), and other car-related expenses.

 However, if you meet the recordkeeping requirements, you are allowed to use the method which provides the highest tax deduction.  However, there are seven situations in which you can not use the standard mileage method – (See “Standard Mileage Rate Not Allowed at http://www.irs.gov/publications/p463/ch04.html#en_US_publink100033930)  

Tax Tips:

  1. If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then in later years, you can choose to use either the standard mileage rate or actual expenses.
  2.   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. 
  3.   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. You cannot revoke the choice. However, in later years, you can switch from the standard mileage rate to the actual expenses method. If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation.
  4. Documentation – Your automobile and vehicle records should be created (updated) during the actual time that you are on a trip.  You may use a handritten vehicle trip log, Excel spreadsheet, special purpose form etc.  However, be sure that your information includes, at a minimum,  all of the following:
  • The date of the trip
  • The odometer reading (both beginning and ending)
  • The business purpose of the trip
  • The destination to which you traveled

 Keep all of your records for at least three years after the due date of your tax return.  If you file your tax return early,  the clock will still start on the original statutory due date (usually March 15th for certain businesses or April 15th for individuals and other entities).  If you requested a six-month automatic extension of the time to file, then the clock will start at the later date (September 15th or October 15th).

Questions?  Contact the IRS (1-800-829-1040),  your tax preparer,  or your CPA.

Home Business Use (Home Office) Deduction

Wednesday, March 17th, 2010

The real (actual) unemployment rate is as high as 15% in some areas of the United States.  Job opportunities are limited.  Many former employees have decided to start their own businesses rather than become an employee again.  They often operate their business from their home.  Anecdotally, Hewlett Packard began its operations in the founder’s garage.  If qualified, making a decision regarding whether to claim the expenses for the use of your home for your business operations is a continuing issue and problem for both American taxpayers and the Internal Revenue Service.  As you may have already concluded, there are far too many instances of fraud and abuse by those taxpayers who are clearly not entitled to the deduction.  It is also a potential “red flag” area that could cause your tax return to be examined and audited.   

There are several situations that may exist in one of three categories:  1)  Fully qualified (entitled), 2) Partially qualified (not meeting one or more of the requirements, and 3)  Not  qualified.  Then the major considerations (factors) become whether or not you are claiming the expenses on your tax return.   From a practitioner’s perspective we must ask our clients about their specific situation and assist the client in determining whether or not the deduction (expenses) should be claimed.  While the Internal Revenue Service does provide general guidelines (which are also provided in this article) these guidelines can not be expected to cover every possible situation.  IRS Publication 587 (“Business Use of Your Home”)  provides additional information and guidance and should also be carefully reviewed.

IRS Topc 509 (Business Use of The Home) is provided on the “Information Center” page of this website.  To review the information in this article now on the business use of the home, click on this link.

Recent guidance from the Internal Revenue Service is provided below from IRS Tax Tip 2010-53: (more…)