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Archives for Tax Planning

The fine is $100 per day…

…when the Employer reimburses the Employee for health insurance costs

This is not a joke.  It is from IRS Notice 2013-54, in reference to a long-held practice whereby employers could simply reimburse employees for health insurance secured directly by the employees.  Prior to 2014, such an arrangement was an acceptable alternative for smaller employers for whom group coverage was impractical.  The employee secured the insurance and the employer either paid the premiums directly, or reimbursed the employee for the premiums.

The tax consequences were favorable.  The employer got a deduction just as if it were regular group health insurance, but the employee did not recognize income.  (A similarly beneficial arrangement was in place for S-Corp owners.)

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The Doctor Will See You Now: Acceptable Medical Expenses

Review of acceptable medical expenses for tax purposes

It may be hard to go a complete year without spending money for health purposes.  However, not everything we consider “healthful” counts as a medical expense!  Generally speaking, the IRS only considers expenses specifically related to the medical community to be acceptable, and the states follow suit.  That is, joining a gym, taking vitamins, and even putting Band-Aids® on boo-boos are not deductible for tax purposes.

What kinds of expenses count?
In Publication 502, page 2, the IRS defines medical expenses as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease…and payments for legal medical services rendered by physicians, surgeons, dentists and other medical practitioners…to alleviate or prevent a physical or mental defect or illness.  They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.”  (Yes, that is a direct quote from the IRS publication.  Apparently, someone has a sense of humor.)

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Ouch! (Changes to the Medical Expense Deduction)

Staying on top of the Medical Expense Deduction

Along with charitable contributions, state tax expense, mortgage interest, and real estate tax, many folks have been able to include a little something for medical expenses on their Schedule A: Itemized Deductions, but this is changing.

Here’s how it used to work:  figure out your Adjusted Gross Income(AGI), take 7.5% of your AGI, and any medical expenses in excess of this amount get included with your itemized deductions.  Basically, this meant that the government figured you should be able to afford to spend up to 7.5% of your available income on medical expenses, and anything beyond that merited special consideration, namely, a tax deduction.

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Save the Date!

Because it isn’t what you think it is…

Individuals!

In Washington DC, there is a holiday called Emancipation Day.  This year, it falls on Friday, April 15.  Due to this, the basic federal income tax deadline has been changed to Monday, April 18.  Most states will follow suit, just because it is easier to have the same deadline. This is a one-time change.

Businesses!

Beginning next year, for the 2016 federal income tax filings happening in 2017, the due dates for some forms will change.  This is a permanent change!  Here’s the list:

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Charity: Donating Really Big Stuff…Like Cars

No act of kindness, no matter how small, is ever wasted. – Aesop

What’s left?  How about really big stuff, like cars!

You hear it on the radio all the time.  Various charities trying to outdo one another in the attempt to get you to let them have your old car.  How does that work, anyway?  Is it really worthwhile?

I can’t speak to the value to the individual organization. Are they really turning clunkers into cash? Or is it just some kind of keep busy activity for a certain segment of their population? Once again, I’m not a sociologist, and I’m not worried about it. As long as your paperwork is in order, you don’t have to worry about it, either.  Keep reading!

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Charity: Donating Non-Cash Goods (aka “Stuff”)

Charity begins at home, but should not end there. – Thomas Fuller

In addition to money, many people give ‘stuff’.  Used clothing.  Outgrown toys.  The old couch.  As with money, as long as you give it to a qualifying organization, ‘stuff’ can qualify as a charitable contribution and be taken as a deduction on your income taxes.

Many people give their used stuff to Goodwill.  I think this is because the folks at Goodwill Industries have gone out of their way to make it easy for us to find them.  There are many other organizations that accept donations of stuff.  There is one that is very good at sending a truck to pick up, but according to my clients, fairly bad at providing any kind of receipt.  Be careful.

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Charity: Giving, American Style

Ask not what your country can do for you, ask what you can do for your country. – John F. Kennedy

What exactly is a 501c3 organization?

This is IRS code for a properly registered and functioning charitable organization here in the United States of America.  You can look up most IRS qualifying charities with their Exempt Organizations Select tool.  “Most” is as close as you can get because a) the list is ever-changing, b) not all churches are registered because they are automatically tax exempt, and c) governmental units don’t have to register.

Real charities issue receipts, or acknowledgement letters, often disguised as mushy thank you notes.  The letter needs to specifically state the value of your charitable donation.  It needs to state something like “no goods or services were received in exchange for the donation.”  If possible, it will also state that the organization is a 501c3 organization.  Oh – and it has to have a date, and be issued before the taxes are due.

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Charity and Itemized Deductions (Schedule A)

Charity and the Schedule A

We make a living by what we get, but we make a life by what we give. – Winston Churchill

It happens every tax season.  I ask a new taxpayer about their charity, and I get, “Put me down for the maximum.”  Folks, I hate to have to tell you this, but there is no maximum.  There is no standard amount for charity that you can just use as a default, absent of any documentation or even actual giving.  I confess I sometimes wonder if it might be years and years of systematic abuse of line 19 that has driven the IRS to such nitpicking specificity for the documentation of this one deduction.

Let’s start at the beginning.

Here in the USA, a lot of taxes are paid, and in a variety of ways.  For income taxes, folks are still allowed a deduction for charitable giving.  This deduction is taken on Schedule A, lines 16, 17, 18 and 19.

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