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Life Changes and Taxes Part II

Posted on January 27, 2016 at 1:10 PM Comments comments (9698)

Special thanks to freedigitalphotos .net and imagerymajestic for the fantastic Free Photo

Last week we looked at our young teenagers starting out with their first jobs and how using different items on their W4 forms could change their tax returns.  This week, our teenagers have gone to college!  

What changes for a teenage taxpayer when they graduate high school and head off to college? Do their parents still claim them?  Do they finally get to claim themselves?  Should they change the tax withholding on their W4?  Will they be eligible for credits for going to school?  Do they have to pay tax on the scholarship, grant or fellowship they recieved? What about that 529 plan distribution?  We will look at each of these questions and highlight the pros and cons, tax wise, that go with each.

When your teenager heads off for college it can be both exciting and terrifying at the same time. All the unknowns can be trying to the parents as well as the student.  Taxes, when related to college, don't have to be a terrifying experience.  

Senario 1:
Your teenager just started college, they will be working part time to help pay for small expenses and received a scholarship to help cover the cost of tuition.  In this case, depending on the students income, most parents will still be able to claim the student on their return.  Not much changes from when their child was working throughout high school.  If the student works and is required to file a return, they will still mark they are claimed by another.  In many cases, they will file to get a refund of tax paid in.  Is the scholarship taxable?  If the scholarship was used to pay for education expenses such as tuition, fees, books and other supplies then the scholarship is not taxable income.  If the scholarship was used for room and board you may have a taxable scholarship event.  In many cases the student should still claim "0" on their W4 as to avoid working too much and having a tax liability.  If they college expenses were completely covered by a scholarship then there will not be any education credits.  Room and Board is not covered in these credits.  What if you used the amounts in the 529 plan?  This distribution is not taxable if the proceeds were used for education.  
Senario 2:
Everything is the same as in 1 except our student didn't receive any scholarships or proceeds from a 529 plan.  Then education credits or deductions can be taken.  These range from the American Opportunity Credit, the Lifetime Learning Credit as well as the Tuition an Fees Deduction.  Who claims the credit or deduction?  If the young student is being claimed by their parents then the parent claim these.  If they are claiming themselves then they are allowed to claim them on their return.    
Senario 3:
Everythings the same as in 1 but the scholarhsips didn't cover all of the expenses.  In this case, their may be education credits or deductions available.  Subtract the scholarship received from the expenses for tuition, books, fees and supplies to get the out of pocket costs paid for the year.This is the amount to use for the credits or deductions.

What if they used Student loans to pay for the costs.  Even if student loans were used, education credits can still be taken as these are considered as paid out of pocket.  When the loans are being repaid there may be a deduction for the student loan interest that was paid all year.

We here at Excel Tax and Consulting Services want to be here for you through all of your life changes.  Check back next week when our teenagers have become adults!

Excel Tax and Consulting Services
1324 1st. Ave. N.
Denison, IA 51442
712-263-8032

Life Changes and How They Correspond With Your Taxes

Posted on January 21, 2016 at 1:35 PM Comments comments (71)

Special Thanks to FreeDIgitalPhotos.net and stockimages for the wonderful free to use photos!

This week's blog starts a series of blog posts on how you progress through life and the changes it makes to your tax situations.  Each week, our goal is to show how much more complicated your tax life is as you grow older.  I anticipate that each week's post will get longer as life gets more complicated.  This week we focus on a young teenager just starting out with their first job!

One of the most overlooked group of taxpayers are teenagers.  For years parents have always told their young working children they should write "EXEMPT" on their forms when they get their first job as they won't be working much.  I believe this can be a huge mistake.  In this day and age a teenager who goes to highschool and works is very likely to work just as many hours as they law allows and in some cases more.  Why?  Teenagers today are saving for college, looking to buy a car, or in some cases must work to help support the family.  

Let's look at our motivated teenager in a couple of different tax situations in order to show the differences of using "Exempt" vs having tax withheld.

Senario 1:
Our teenager gets their first job in the middle of the year around June or July, they are making minimum wage and only working about 10 hours a week.  Their before tax pay is approximately $75-$80 a week.  This leads to them making about $1800-$1900 for the part year.  This is a case where using "Exempt" would be reasonable.  They would not have a filing requirement because their pay is way below the threshold.  There is one issue, if they don't change the W4 for the next year and they either work more hours, get a raise or work a 2nd job they could end up owing taxing in a furture year!  No teenager should be introduced to the Tax Man that way!

Senario 2: 
Our teenager gets their first job at the beginning of the year, they are making minimum wage but are now working 20 hours a week.  Their before tax pay is approximately $145-$165 a week. This leads to them making $7500-$8000 for the year.  Now this teenager has a filing requirement! Their parents will still claim them on their return but the teenager needs to file a return on their own income.  The hitch to this is that our poor teenager doesn't get to take an exemption on their return for themself as the parent have taken it on their return.  

Had our teenager filed the W4 form with the word "Exempt" a tax bill would be due the IRS as no income tax was taken from the earnings!

Had our teenager filed the form W4 with either a "0" or a "1" in the total exemption section they would either break even, or get a refund.  

If a teenager in highschool gets a tax bill most will not have the money to pay the IRS.  Some parents are fine with paying the tax due for their child while others are struggling themselves and do not have the resources.  

Which way would you like your children to learn about the IRS and the "Tax Man"?  I have always coached my children to claim "0" NOT "Exempt".  This way I can discuss the reason for the taxes coming out of their income and when it comes tax time, explain how the IRS calculates their tax liability.  Explaining tax liability, and the reason you pay tax through your wages seems easier then explaining that a part of the government requires you to send them money because you worked.  Plus this was a great way for them to learn how to save!  Their refunds were always direct deposited in the bank where it was harder for them to get to it every time they wanted something.  It gave my children time to think the purchases through before actually making them.

There are always additional factors that can change the outcome of any return.  See a knowledgeable tax professional before filling out any new employment paperwork!

Excel Tax and Consulting Services
1324 1st. Ave. N.
Denison, IA 51442
712-263-8032
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The Tax Advantages of Adoption

Posted on December 24, 2015 at 12:55 AM Comments comments (3782)

Special thanks to http://adoptiontaxcredit.org/ for the Photo.  Check out their site for additional information on the Adoption Credit!

Adopting a child has many advantages for many families.  You are adding a new family member to love and cherish, all of you will get to experience the unconditional love and support of the new family unit, as well as making each and every day special for one another.  Many children today would be without loving and permanent families if it were not for the Adoption Credit and other forms of Adoption Asistance available today to help with the cost of adoption.  


At this time the Adoption Credit is unrefundable.  In a few earlier years the IRS had a temporary provision allowing for the refundability of the credit.  At that time, all unused adoption credits from prior years could be taken as a refundable credit in those years.  This led to very large refunds for many families across the country.  This was due, in large part, because the families eligible for the credit couldn't use the credit because their income was already low enough that they received NO benefit from the credit and had to keep carrying it forward year after year.  

The Credit and Exclusion Amount

For adotions finalized in 2015 the credit is up to $13,400 per child for eligible expenses.  A taxpayer can also exclude up to the same amount in Employer Provided Adoption benefits from income.  Keep in mind that the same expenses can't be used for both.  Limits do apply to the total spent over all years for each effort to adopt an eligible child.

An Unsuccessful Adoption

Any taxpayer who paid qualified expenses in an attempt to adopt a US child and the attempt was unsuccessful are to treat those expense in the same manner as expenses paid for adoption not final by the end of the year.  This means that if your adoption was unsuccessful in 2015 you treat those expenses as 2014 expenses.  An Amended Tax return may be needed to take the credit. In the case of a foreign child adoption, the credit or exclusion can't be taken unless the adoption becomes final.

Qualified Expenses

These are reasonable and necessary expenses principally for the legal adoption of an eligible child.  These can include: Adoption Fees, Attorney Fees, Court Costs, Travel Expenses while away from home, Re-adoption in State Court.

Nonqualified Expenses

Expenses to adopt a spouse's child, Expenses for surrogate parenting, paid for or reimbursed by an employer, government agency or other agency, Expenses that are allowed as a credit or deduction under another tax provision, and Expenses that violate state or federal law.

Eligible Child

Any child under 18 years of age or any person who is physically or mentally incapable of self care.  A US child is a child who is a US citizen or resident.

When to Claim the Credit and Exclusion

  1. Expenses paid in any year before the year the adoption becomes final- Take the credit in the year after the year of payment.
  2. Expenses paid in the year the adoption becomes final- Take the credit in the year the adoption become final.
  3. Expenses paid in any year after the adoption becomes final- Take the credit in the year of payment.
  4. Employer provided benefits under an adoption assistance program in any year- Take the exclusion in the year of payment

Children With Special Needs

If a taxpayer adopts a US child with special needs they may be eligible to exclude up to $13,400 and claim a credit for additional expenses up to the same amount.  The exclusion may be available even if you or your employer paid no expenses, provided your employer has a written adoption assistance program.

A US citizen or resident that is determined by a state to be unlikely to be adopted unless assistance is provided due to the child's age, ethnic background, medical condition, membership in a minority or sibling group, etc  is considered special needs.  If your adoption include this component, you may be able to take the credit even if you didn't pay any adoption expenses.

Credit Carryforward

Any unused credit is carried forward to the next 5 years or until used.  The sad reality is that many adoptive families lose this credit because their income falls below filing guidelines.  

As you can see, there are many provisions to the Adoption Credit and Exclusion.  Some we haven't even touched on.  

On top of the Adoption Credit and Exclusion you may be eligible for the Child Tax Credit, the Additional Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Expenses Credit, and the exemption for the child, if you qualify.

For these reasons we at Excel Tax and Consulting Services suggest contacting a Tax Professional, such as an Enrolled Agent, who has knowledge in adoptions so you receive all the tax advantages due to you.

As always, Call or Stop By 1324 1st. Ave. N. Denison, IA 51442  or Follow us on Facebook/exceliowa 

The Iowa Retirement Advantage

Posted on December 16, 2015 at 1:20 PM Comments comments (166)

Retiring in Iowa gives you some great tax advantages.  First we will look at the Iowa tax law that has changed that pertains to taxable Social Security Benefits.  Iowa recently stopped taxing your Social Security payments and this makes a huge difference on the income tax return of an Iowa resident.  Social Security Benefits are excluded from income when computing your Iowa income tax, but they are included in determining if a taxpayer has sufficient income to file an Iowa tax return as well as computing Iowa's Alternate tax.  This is a substantial difference from the Federal tax treatment of Social Security Benefits.  Federal can tax from 0%, 50% up to 85% of your benefits depending on the amounts of other income on your return.

If you live in Iowa and you or your spouse receive a pension, annuity,SEP, 401K, IRA or other retirement plan distribution, some or all of the distribution may be excluded from income.  There are a few conditions that must be met for Iowa residents to qualify for this exclusion:
  1. You or your spouse must be 55 years of age or older by the end of the year, or
  2. Disabled, or
  3. A surviving spouse or a survivor with an insurable interest in an individual who would have qualified  on the basis of age or disability.  
A son, daughter, mother or father can be considered a survivor with an insurable interest.
The exclusion is up top $6000 ($12,000 for Married Taxpayers).  Married taxpayers can claim up to the $12,000 even if only one spose meets the requirements and the other spouse is the one that receives the distribution.  There are certain rules for Married Filing Separate filers that may need to be taken into account.  For these you should see a knowledgeable tax professional such as an Enrolled Agent to help guide you through the percentages.  

Another great advantage to retiring in Iowa is that if you move here from another state and that is your only income from the other state, your other state may not tax your pension at all and Iowa will still allow the exclusion!  Non Iowa Residence can not receive the exclusion.

With all the changes to Federal and State tax laws Excel Tax and Consulting Services in Denison, IA would like to remind you to always seek out an honest, trustworthy and knowledgeable tax professional who will work with you to make sure your taxes are done correctly at a fair price.  Our Enrolled Agent is always onsite to answer your questions.  Call or Stop in to schedule your appointment today!

Iowa-Filing Status

Posted on December 10, 2015 at 12:50 AM Comments comments (72)

When it comes to the state of Iowa, your filing status is usually the same as your Federal filing status.  Iowa allows you to use one of the following:  Single, Head of Household, Qualifying Widow/Widower, Married Filing Joint, Married Filing Separate, or Married Filing Separate On A Combined Return.  As you can see, all but one of these matches the Federal.  

In almost all cases you will use the same filing status on your Iowa return as you used on your Federal return.  The one exception is when a married couple files a Joint Federal return they have the option to either file their Iowa return as: Married filing Joint or Married Filing Separate on a Combined Return.  This is not to be confused with a Married Filing Separate return as that requires you to file a Married Filing Separate Federal return.  A Married Filing Separate on a Combined return is used when a married couple is filing a joint Federal tax return and choose to file Iowa as Married Filing Separate on a Combined Return.

Are there advantages to filing an Iowa return with the Married Filing Separate on a Combined Return status?  For many Iowans, the answer is yes.  Using this filing status can save tax dollars as each of your incomes is taken into consideration separately to get to your combined Iowa tax. For many years this was the area many tax professionals fixed for clients who had done their own returns and were not aware of the tax benefits of this filing Status.  In some cases you are looking at hundreds saved!

The rules pertaining to this filing status are pretty straight forward.  You MUST be legally married, file a joint Federal return, both spouses must have income to report, and you must choose this filing status over the Married Filing Joint status.

What happens if you have dependents on your return?  You can split up the dependents.  For example:  You and your spouse have 2 children, you can each take a child or only one of you can take both children on the Iowa return.  This is where playing with the numbers and moving dependents around can reward you with great tax benefits.  Iowa does not require taxpayers to split the dependents on the return, nor do they require the highest earner to claim the dependents.

If you use a knowledgeable Tax Professional, who cares about finding every dollar you are legally eligible for, they will try your return many different ways to see which way gives you the better tax benefit.  From checking to make sure the correct filing status is used to moving dependents around to see where they give you the most benefit.  

Excel Tax and Consulting Services in Denison, IA is offering a free review of your prior year return to make sure you claimed everything last benefit you were entitled to!  Call us at 712-263-8032, email us at [email protected] or Stop In at 1324 1st. Ave. N. Denison IA  

For more information visit the Iowa Department of Revenue at https://tax.iowa.gov/expanded-instructions/filing-status" target="_blank">http://https://tax.iowa.gov/expanded-instructions/filing-status

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Deducting Fido

Posted on December 2, 2015 at 1:50 PM Comments comments (57)

One of the most commonly asked questions I get every year is "Can I deduct my pet?".  This question in most cases can be answered with a simple "No".  When can a dog become a deductions?  What about a cat or other animal?  Can their vet bills be written off?  Continue reading for insights as to when the use of a pet may be deductible on your tax return.  In no case can an animal be claimed as a dependent.

Medical Deduction (Itemized Deductions on Form 1040 Schedule A)
In some cases a pet can also be a Guide Dog or other service animal.  This allows the animal, and it's care to be claimed as an itemized deduction for Medical Expenses.  You must be able to prove that the animal is used as a service animal for a medical need such as blindness, hearing impairment or other disability requiring a service animal.
Excert from the IRS website pertaining to this information:

Guide Dog or Other Service Animal

 

You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities. In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties.


You must remember that Medical Expenses are only deductible if they reach 10% of your adjusted gross income.  There is a special rule in place for individuals age 65 and over that allows the expenses to be 7.5% of adjusted gross income.  This special exemption is set to expire December 31st 2016.  Information related to the limits can be found at:

Farm Animal (Form 1040 Schedule F):
Farmers and Ranchers who have a dog that guards their cattle or one that performs other farm duties can take a deduction for their care and upkeep as well as the purchase of the animal.  The animal must perform specific Farm related duties in order to be classified as a Farm Service Animal.  In some cases the cost of the animal may need to be depreciated.  For depreciation information see your knowledgeable tax professional or advisor.  
Another animal common to farms that are usually considered pets are cats.  If you keep cats on your property to control rodents and other pests the cost of the cats, their care and upkeep can be deductible as well on your farm schedule F.
For more informtion about deductions for Farm Animals see IRS publication 225

Breeding, Raising or Care For (Form 1040 Schedule C Business)
If you are in the business of breeding, caring for, or raising dogs and cats you may be able to deduct your expenses for the animals on a Schedule C as a business expense.  Good record keeping is imperative to show that the animals are not pets but a means to your income in the business.  You should talk with a knowledgeable tax advisor about the differences between Hobby and Business so that your deductions related to the breeding, raising or care of the animals is placed in the correct area of your return.  If you don't meet all the requirements to be in the business of breeding, raising or caring of the animals you may still qualify for a deduction as a Hobby.  See the next section for information on Hobby deductions for Fido.  Also, see IRS publication https://www.irs.gov/pub/irs-pdf/i1040sc.pdf" target="_blank">http://https://www.irs.gov/pub/irs-pdf/i1040sc.pdf for more information related to the business deductions.

Hobby (Form 1040 Schedule A)
If you are not in the business of breeding, raising or caring for certain animals but do this more as a hobby, you may be able to take the expenses for this income as an itemized deduction on your Form 1040 Schedule A.  Hobby expenses are only deductible up to the amount of Hobby Income claimed on your return.  IRS Publication 529 has information on the Miscellaneous deductions on the schedule A for Hobby Expenses.

In all cases pertaining to the possible deductions for Fido or other animals that are commonly pets we at Excel Tax and Consulting Services recommend seeking out the knowledge of a trusted Tax Professional or Tax Advisor.  We recommend Enrolled Agents who are well versed in Tax Law.  

As always please feel free to call or stop in with any questions.  Follow us on Facebook 
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Hidden Income

Posted on November 19, 2015 at 12:55 AM Comments comments (63)

For many, the foreclosure of their home, or the repossession of an asset is one of the worst moments of their life.  For others who may be in a financial bind, having a debt cancelled can seem like a lifesaver.  What do they all have in common?  A surprise tax bill.  

When a debt is cancelled or an item is repossed or foreclosed on the hidden income in that act becomes taxable.  For many taxpayers this is only brought to their attention while they are doing their taxes, not leaving them any time to plan for the taxes owed on the hidden income.    

Cancellation of debt may result in ordinary income, income from the sale of assets or both.  In some cases there are Nontaxable Cancellation of debt income.  

In many cases a taxpayer will receive a 1099-C with the cancelled debt amount listed.  In cases of a home foreclosure and later sale of the home a 1099-S may be issued.  

Credit Card debt is one of the largest debt cancelled that become taxable.  EX. You owe $10,000 to your credit card company.  You become behind on your payments and call them to make a modification or they send you a modification agreement saying that they will cancel the card and only make you pay 50% of the debt.  This leaves $5,000 that does not need to be paid.  This also now leaves you with hidden income of that very same $5,000 on your income tax return.  If you modify just a couple of credit cards in the same year the amounts of that hidden income can really add up as well as the taxes on that income.

Another cancelled debt that is all to familiar is home foreclosure.  This is treated as a sale which can make the taxpayer realize a gain or loss.  If the loan balance was more than the Fair Market Value of the property and the lender cancels some or all of the balance, the taxpayer may realize income from the cancelled debt unless they can qualify for an exception or an exclusion.  

The tax treatment, exceptions and exclusions all depend on the cancelled debt situation.  For a home that has been foreclosed on, a taxpayer may be eligible to use the Sale of Main Home exclusion if they meet all the requirements.  As for other options on the hidden debt, Insolvency and Bankruptcy may help you from paying tax on the hidden income.  

If you have questions on a cancelled debt or foreclosure see an experienced tax professional about the different options you have for your type of cancelled debt.  Your tax professional should be able to assist you in finding an exclusion or exception to the debt, if you qualify.  Don't just take the debt and pay the taxes on it without getting valuable advice that could save you some hard earned income!

For more information on Cancelled Debt see the IRS publication 4681

As always, Our Professionals at Excel Tax and Consulting Services are here for you!  Call or Stop in Today.  Vist Us on Face book https://www.facebook.com/exceliowa" target="_blank">http://https://www.facebook.com/exceliowa 

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Filing Status

Posted on October 21, 2015 at 11:50 AM Comments comments (900)

Filing your return with the correct filing status is very important.  Certain filing statuses can cause you to receive credits and deductions you are not entitled to as well as take away some you may be entitled to.  

There are 5 Federal filing statuses and each has their own set of rules to be claimed on an accurate Federal Tax Return.  These statuses are: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow/Widower.  Knowing your correct filing status can help save an IRS review of your return as well as provide credits and deductions that can have a financial benefit.

Single:  You are unmarried, divorced, or widowed.  This is a pretty straight forward filing status and any credits and deductions you are entitled to are allowed.  These can include Earned Income Tax Credit, Education Credits, the Student Loan Interest Deduction, etc.

Married Filing Jointly:  You are legally married.  If your spouse passes away throughout the year you can still file a joint return for the year of death with your spouse.  This is also another filing status that allows you to take any credits and deductions you are entitled to.  This filing status does require BOTH spouses to sign the return which says they are both liable for any information pertaining to the return.  

Married Filing Separately:  You are legally married but do not wish to file a joint return with your spouse. This filing status does limit some credits and deductions you are allowed to take on your return.  When filing a separate return the Earned Income Tax Credit, Education Credits, Tuition and Fees Deduction, Student Loan Interest Deduction, Tax Free Exclusion of US Bond Interest, Tax Free Exclusion of Social Security Benefits, Credit for the Elderly and Disabled, and the Child and Dependent Care Credit are all disallowed.  Also, both spouses must use the Standard Deduction or Both must itemize their deductions.  This is true even if one spouse has nothing to itemize, this means that they will have a $0 deduction.  Another down fall to this status is the lower income phase-out for deductible IRA.    Also be aware that this filing status generally pays the most tax of all the filing statuses.

Head of Household:  You are unmarried or can be considered unmarried for tax purposes and provide more than 50% of the household support for you and a dependent.  This filing status does allow for any and all deductions and credits you are legally allowed.  Note, that to be considered unmarried for tax purposes you must have been separated from your spouse for the last 6 months of the year.  IRS ruling states that even 1 day in the last 6 months can cause this filing status to be disallowed and the Married Filing Jointly or the Married Filing Separately status must be used.  There are very few cases where there can be more than 1 Head of Household in a home.  This is not to say that this can't happen but there are many things to look at before this should be considered.  

Qualifying Widow/Widower:  In order to use this filing status you must have been able to file a joint return with your spouse in the year of death.  You didn't have to file a joint return just have been able to.  Then for 2 years after the year of death if you have qualifying children on your return you can use this status to give you a higher standard deduction.  Allo credits and deductions are allowed with this status as well.

Special Filing Status for Married Iowa Residents:  Married couples in Iowa can use a filing status called Married Filing Separate on a Joint Return.  This status is available if you file a Joint Federal return and in most cases increases your refund or lowers your balance due with the state of Iowa.  This is a common mistake for self filers who are not aware of this status and what it can do for their Iowa return.  If you feel that your Iowa return has been completed incorrectly see a tax professional for a free review at Excel Tax and Consulting Services!  

Correct Filing Status determination is a great start to an accurate tax return but won't get you all the way.  Check back for more details on filing accurate tax returns.  As always, Excel Tax and Consulting Services is at your service for all your tax needs!

Itemized Deductions-Casualty & Theft Losses

Posted on October 8, 2015 at 12:40 AM Comments comments (44)

Today I would like to discuss the deductions for Casualty and Theft Losses that may help lower your tax bill.  A Casualty Loss is the damage, destruction, or loss of property resulting from a recognizable event.  This inlcudes, but is not limited to, Fire, Tornados, Hurricanes, Flooding etc.  A casualty is sudden, unexpected and unusual.  A Theft Loss is the taking and removing of money or property with the intent to deprive the owner of it.  It must be illegal under the state law, and done with criminal intent.

Examples of Deductible Losses:

  1. Blackmail
  2. Burglary
  3. Car Accident
  4. Earthquake
  5. Embezzlement
  6. Extortion
  7. Fire
  8. Flood
  9. Hurricane
  10. Kidnapping for Ransom
  11. Larceny
  12. Mine Cave-In
  13. Robbery
  14. Shipwreck
  15. Sonic Boom
  16. Storm
  17. Terrorist Attack
  18. Tornado
  19. Vandalism
  20. Volcanic Eruption

Examples of Nondeductible Losses:

  1. Accidental Breakage under normal condition
  2. Burst water heater, note that the damage caused by the burst water heater is a casualty
  3. Car rental while your vehicle is being repaired
  4. Cost for protection against future casualties
  5. Cost for personal injury
  6. Damage caused by a family pet
  7. Defective design or workmanship
  8. Losses caused by willful act or negligence
  9. Lost money or property
  10. Normal wear and tear
  11. Personal use losses caused by drought
  12. Progessive damage to property
  13. Sentimental Value

There are a few cases where a nondeductible loss can become a deductible loss.  One example, the corrosive damage caused by defective drywall installed in homes between 2001 and 2009. See your tax professional if you think you may qualify for a casualty or theft loss of items not listed.

When claiming the loss there are a few deduction limits to be aware of:  

  • 2% Rule:  The casualty and theft loss deduction for employee property must be reduced by 2% of adjusted gross income.
  • $100 Rule:  Reduce eash loss event by $100
  • 10% Rule:  Reduce the total of all casualty or theft losses by 10% of adjusted gross income.  This rule is applied after reducing each loss by $100.

Your casualty or Theft Loss must be reduced by any and all insurance reimbursements received and is the lesser of your cost or basis in the property or the reduction in the fair market value  due to the loss.  Form 4684 is used to claim a loss and then transfered to form 1040 schedule A.

There are special rules for losses in a Federally Declared Disaster Area.  See you tax professional for specific information on Casualty and Theft losses for your situation.

As always, Excel Tax and Consulting Services is here to help lower your taxes accurately.  Call or Stop by today.



Medical Expenses

Posted on September 16, 2015 at 1:00 PM Comments comments (42)

One of the biggest question I get every year is "What can I deduct on my return?".  Today's post will be the first in a series of post on the Schedule A Itemized Deductions.  I hope this helps the majority of the taxpayers with questions on their deductions.


Medical expenses are deductible when they are more then 10% of your Adjusted Gross Income (AGI).  If either you or your spouse is 65 years or older you can deduct these if they are more than 7.5% of your AGI.


What medical expenses are deductible?  General medical expenses you pay for yourself, spouse or dependent are deductible.  These expenses must be paid for in the year you deduct them.  Not the year of the service, unless they are one in the same.  

Example 1:  You have a major medical procedure in April.  Your bill is $10,000 after insurance, you pay $100 a month from May till December of the same year.  You can deduct the $800 payments in the current year.  The rest in later years as paid.

Example 2:  The same information as in example 1 but instead of making payments you pay the whole $10,000 with a credit card.  You can deduct the whole $10,000 on the current return.


Most medical and dental expenses can be deductible as long as they are legal, not for cosmetic services (some exceptions apply), and are required via a doctor.

Example 1. Breast augmentation is not deductible, but Breast Reconstruction is deductible for a cancer patient.

Example 2.  Capping, Crowning, Braces and other dental procedures are deductible but Teeth Whitening or bleaching is not deductible.


Did you know that expenses you incur while remodeling your home to make it more accessible for your medical needs may be deductible?

Constructing entrance or exit ramps for your home.

 

Widening doorways at entrances or exits to your home.

 

Widening or otherwise modifying hallways and interior doorways.

 

Installing railings, support bars, or other modifications to bathrooms.

 

Lowering or modifying kitchen cabinets and equipment.

 

Moving or modifying electrical outlets and fixtures.

 

Installing porch lifts and other forms of lifts (but elevators generally add value to the house).

 

Modifying fire alarms, smoke detectors, and other warning systems.

 

Modifying stairways.

 

Adding handrails or grab bars anywhere (whether or not in bathrooms).

 

Modifying hardware on doors.

 

Modifying areas in front of entrance and exit doorways.

 

Grading the ground to provide access to the residence.

Don't forget that all your medical miles can really add up!  Keep a log of your miles for medical purposes each year.  Everytime you use your vehicle for medical reasons write the staring odometer, date, time, reason, place you went,  then the ending odometer reading for the trip.  

Overnight stays for medical purposes can also be deducted as a medical expense.  Meals are not included in the medical expenses for the overnight stay.


For more information on deductible medical expenses Stop in or Call us today!  

A good referrance source is IRS Publication 502 which can be found at: http://www.irs.gov/publications/p502/ar02.html#en_US_2014_publink1000178887