Your Tax Question - 080

Dear John,  When we were talking the other day about some of the things that are changing with the tax code, you had mentioned something about the Medical Expenses going away.  When does this happen?  Thanks, Hank
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Hi Hank,


No, the medical deduction is not going away, it is just being increased from 7.5% of your AGI to 10% of your AGI.  This is a deduction which is taken on your Schedule A deductions if your qualifying medical expenses presently exceed 7.5% of your Adjusted Gross Income but beginning in 2012 this deduction will not be allowed until your AGI reaches 10%.  In other words you have to spend more on medical expenses to be allowed this deduction.  So it is only going away for those who usually spend a little more than 7.5% to a little less than 10% of their AGI.  


Hope this clarifies things for you.


Thanks,
John


PS.  One of the things that is new this year for 2011 is the allowed medical expenses for breast pumps and lactation expenses.  It's about time in my opinion since sexual reassignment surgery has been allowed for years.

Your Tax Question - 072

Dear John, I received a 1099-G from the state. Why do I need to claim this amount on my taxes, isn’t that a double taxation event. Thanks, Gloria
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Hi Gloria,

Thanks for the question. The 1099-G from the state reports the amount of money that you had returned from the state last year. When you itemize your taxes on Schedule A of your Federal 1040 you are reducing your AGI (the taxable amount of income) by what was withheld from your income by the state income tax. When you do your state taxes after your federal and you have some of your income tax returned to you then you need to claim that returned amount on your following year’s taxes. If they did not do it this way you would have to correct your federal taxes right then but for convenience sake Congress has not gone this route. Instead, think of it as a FREE 1 year mini-loan from the federal government.

Thanks,
John

Your Tax Question - 069

Dear John, in 2010 I sold my home and bought a new one. I understand that I have to consider any profit on the house that I sold but I’ve been told that there are other tax considerations in the information found in the closing statements. Is this true? And if so, what do I need to know? Thank you, Jerry
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Hi Jerry,

Well the sale of one home and the purchase of another each have to be considered on their own but merge together in the itemized deductions of the Form 1040 Schedule A.

The profit from the home you sold needs to be realized against the amount that you had invested in that property (basis) plus closing costs. If you profited $250,000 ($500,000 married filing jointly) then you will need to report this sale to the IRS and pay the tax due. Plus, lines 510 & 511 on your HUD-1 are deductible amounts to you as well as line 901 if it is on the seller’s column.

As the buyer, so long as this is your main home and your loan was secured by the home itself then HUD-1 lines 106, 107, 801, 802, and line 901 (if in the buyer’s column) are deductions to you. The calculations necessary for these are quite cumbersome and you will likely need the aid of an accountant and tax-preparer. (Luckily I am both and know how to handle these adjustments huh?) Don’t worry, the extra costs are well worth the returned money to you.

Please let me know if I may help.

Best wishes,
John

Your Tax Question - 066

Dear John, I am trying to get me medical expenses together because I think I have enough of them this year (along with other things) to itemize this year. Can you please tell me what the conditions for claiming medical expenses are? Thanks, Jon
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Hi Jon,

Well, let me express that I am sorry that you had so many medical expenses this year – the medical deduction never really makes up for it the hardships so often involved with the medical problems does it?

There are a number of things that you need to keep in mind about the itemized medical deductions on your Schedule--A. First, in order to have enough to claim, your medical expenses must be more than your AGI. So, for instance, if your AGI is $100,000 then you will have to have had $7,501 dollars in med expenses to begin taking this deduction.

Your expenses are only those expenses made during the year and reduced by any amounts reimbursed to either yourself or directly to the care provider.

You may include qualified medical expenses for:

• yourself


• your spouse


• a person you claim as a dependent under a multiple support agreement
  
  • If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child.
  
  
• someone who would have qualified as your dependent except that the person didn't meet the gross income or joint return test.

Deductions are allowed for expenses paid to prevent or alleviate physical or mental defects or illnesses.

Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription except for insulin.

Transportation costs that are primary and essential to medical care that qualify as medical expenses are deductible as well. And remember that any distributions from your Health Savings Accounts (HSA) and withdrawals from Flexible Spending Arrangements (FSA) are tax free if you paid qualified medical expenses.

I know it can be a bit confusing at times so if you should need any help figuring it out, please know that I am always accepting new clients.

Thanks,
John

Your Tax Question - 050

Dear John, is it true that I can deduct the sales tax that I paid through the year instead of the State taxes I paid on my income? Jim

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Hi Jim,

Yes, it is true. Instead of deducting the amount of taxes that you paid to the State on your Schedule A, you may make the deduction with the sales taxes that you paid through the year. This is done by a table that the IRS provides or the actual amount that you paid assuming that you have kept all the receipts as evidence. This approach to the deduction makes sense if you have made major expenses this year such as a car, RV, and/or addition to your home. Compare the allowed amounts and use what gives you the best deduction.

If you need help with this I am always looking for new clients - Email me.

Best,

John

Your Tax Question - 048

Dear John, Earlier this year my house was robbed and many thousands of dollars of valuables were taken and never recovered. My insurance company paid a very small portion but nowhere near what the value was for the items taken. What are the tax rules about losses? Thank you, Ken

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Hi Ken,

I am sorry that your house was robbed and that you have had to go through that ordeal.

Generally congress does not allow losses on anything but business assets but they do allow individuals to claim losses in the case of robbery. The loss is not allowed in the year of the incident if there is a chance at future recovery either of the property or an insurance claim. After that, there is a formula for figuring your loss, it reduces your actual loss but if it was large enough (and your income low enough) then it may be worth figuring.

Let me explain this with an example. Let's say that it has been determined that there is no chance at recovery of your property and your insurance company has already cut you a check. It has been determined, by your insurance adjuster, that your stolen property had an actual value of $10,000 even though you paid $30,000 for it. The rules state that you are allowed the lesser of the basis (amount you paid) OR the adjusted value (what the insurance guy says it's worth) as your loss.

But wait, the $10k still has to be reduced. The $10k has to be reduced by the amount of your insurance adjustment (let's say $2,000) so now you have an $8,000 loss. Plus, you have to reduce the loss by $100 per incident (for 2010) which takes the loss to $7,900. After these adjustments you will then have to reduce it by 10% of your $50,000 AGI - $5,000. You now have a $4,900 loss that you are allowed to deduct on your Schedule A.

That is the way the theft loss works, the actual facts of your particular case need to applied to these rules. Should you need a tax guy to work it out for you just give me a call I am always happy for another client.

Best wishes,

John

Your Tax Question - 018

Dear John, Can I really deduct the costs of preparing my taxes? Thank you, Jill
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Dear Jill,

If you itemize your deductions on Schedule A then you can add into your deductions the fees of preparing your taxes. However, any tax expenses associated with a business are not deductible as those expenses reduce the Net Income of the business claim.

HTH,
John

PS. Now that you know that the fees that you pay for tax preparation is deductible, it makes my introductory price levels more appealing doesn't it? Email me