Overlooked Medical Expense Deductions
- 6 Overlooked
Tax Breaks for Individuals
- 7 Common Small Business Tax Misconceptions
take your medical expense deduction in 2012 your allowable
expenses must exceed 7.5% of your Adjusted Gross Income (AGI).
In 2013 and beyond, unless you are 65 or older, this amount
goes up to 10% of AGI. So why bother?
You might be surprised at how much this expense might be. Here
are some tips:
Donít take the
easy way out. So many think itemizing deductions is such a
pain, that they forego the work of collecting valid receipts.
Donít let this happen to you. Collect the receipts and
determine if you may be giving away money to Uncle Sam by not
itemizing your deductions.
Premiums. Many insurance premium payments are deductible,
including long-term care insurance. Many seniors omit their
Medicare Part B premiums because they are automatically
deducted from their Social Security benefit check.
Look to your face.
Eye care and Dental care are allowable deductions. This
includes overlooked expenses for:
- Eye care: exams, glasses, contact lenses, laser
eye corrections, and insurance premiums
- Dental care: exams, fillings, fluoride
treatments, crowns, dentures, orthodontics, and related
Parking fees, tolls, and mileage to and from appointments also
count. So keep a travel log.
prescription. While over the counter purchases are not
deductible, if the doctor prescribes the medicine or service
it is. So get a prescription for your acid reflux versus
buying over the counter meds. Get a prescription for a weight
loss program and that could be deductible as well.
opportunities. Some other commonly overlooked items include;
smoking cessation programs, alcohol and drug treatment
programs, home remodeling for handicap access, and visits to
other health providers (acupuncture, chiropractor, and
podiatrist to name a few).
Medical care is very expensive these days, and it wonít be
getting any cheaper. It does not take much to make your
expenses meaningful tax deductions, but only if you keep track
6 Overlooked Tax Breaks
about which credits and deductions you can claim on your 2012
tax return? You're not alone. Even in an ordinary tax year,
it's hard to remember which tax breaks you can take, but the
fiscal cliff fiasco this year made it even more difficult to
keep everything straight. With that in mind here are six tax
breaks for 2012 that you won't want to overlook.
State Sales and Income Taxes
Thanks to the fiscal cliff deal, the sales tax deduction,
which expired at the end of 2011, was reinstated retroactive
to 2012 (it expires at the end of 2013). As such, IRS allows
for a deduction of either state income tax paid or state sales
tax paid, whichever is greater.
If you bought a big ticket item like a car or boat in 2012, it
might be more advantageous to deduct the sales tax, but don't
forget to figure any state income taxes withheld from your
paycheck just in case. If you're self-employed you can include
the state income paid from your estimated payments. In
addition, if you owed taxes when filing your 2011 tax return
in 2012, you can include the amount when you itemize your
state taxes this year on your 2012 return.
Child and Dependent Care Tax Credit
Most parents realize that there is a tax credit for daycare
when their child is young, but they might not realize that
once a child starts school, the same credit can be used for
before and after school care, as well as day camps during
school vacations. This child and dependent care tax credit can
also be taken by anyone who pays a home health aide to care
for a spouse or other dependent. The credit is worth a maximum
of $1,050 or 35% of $3,000 of eligible expenses per dependent.
Job Search Expenses
Job search expenses are 100% deductible, whether you are
gainfully employed or not currently working--as long as you
are looking for a position in your current profession.
Expenses include fees paid to join professional organizations,
as well as employment placement agencies that you used during
your job search. Travel to interviews is also deductible (as
long as it was not paid by your prospective employer) as is
paper, envelopes, and costs associated with resumes or
portfolios. The catch is that you can only deduct expenses
greater than 2% of your adjusted gross income (AGI).
Student Loan Interest Paid by Parents
Typically, a taxpayer is only able to deduct interest on
mortgages and student loans if he or she is liable for the
debt; however, if a parent pays back their child's student
loans the money is treated by the IRS as if the child paid it.
As long as the child is not claimed as a dependent, he or she
can deduct up to $2,500 in student loan interest paid by the
parent. The deduction can be claimed even if the child does
Most people know that medical expenses are deductible as long
as they are more than 7.5% of AGI for tax year 2012 (10% in
2013). What they often don't realize is what medical expenses
can be deducted such as medical miles (23 cents per mile)
driven to and from appointments and travel (airline fares or
hotel rooms) for out of town medical treatment.
Other deductible medical expenses that taxpayers might not be
aware of include: health insurance premiums, prescription
drugs, co-pays, and dental premiums and treatment. Long-term
care insurance (deductible dollar amounts vary depending on
age) is also deductible, as are prescription glasses and
contacts, counseling, therapy, hearing aids and batteries,
dentures, oxygen, walkers, and wheelchairs.
If you've loaned money to a friend, but were never repaid, you
may qualify for a non-business bad debt tax deduction of up to
$3,000 per year. To qualify however, the debt must be totally
worthless, in that there is no reasonable expectation of
Non-business bad debt is deducted as a short-term capital
loss, subject to the capital loss limitations. You may take
the deduction only in the year the debt becomes worthless. You
do not have to wait until a debt is due to determine whether
it is worthless. Any amount you are not able to deduct can be
carried forward to reduce future tax liability.
Are you getting all of the tax credits and deductions you are
entitled to? Maybe you are...but maybe you're not. Why take a
chance? Make an appointment with us today and we'll make sure
you get the tax breaks you deserve.
7 Common Small Business
the biggest hurdles you'll face in running your own business
is staying on top of your numerous obligations to federal,
state, and local tax agencies. Tax codes seem to be in a
constant state of flux making the Internal Revenue Code barely
understandable to most people.
1) Start-Up Costs are Immediately Deductible
The old legal saying that "ignorance of the law is no excuse"
is perhaps most often applied in tax settings and it is safe
to assume that a tax auditor presenting an assessment of
additional taxes, penalties, and interest will not look kindly
on an "I didn't know I was required to do that" claim. On the
flip side, it is surprising how many small businesses actually
overpay their taxes, neglecting to take deductions they're
legally entitled to that can help them lower their tax bill.
Preparing your taxes and strategizing as to how to keep more
of your hard-earned dollars in your pocket becomes
increasingly difficult with each passing year. Your best
course of action to save time, frustration, money, and an
auditor knocking on your door, is to have a professional
accountant handle your taxes.
Tax professionals have years of experience with tax
preparation, religiously attend tax seminars, read scores of
journals, magazines, and monthly tax tips, among other things,
to correctly interpret the changing tax code.
When it comes to tax planning for small businesses, the
complexity of tax law generates a lot of folklore and
misinformation that also leads to costly mistakes. With that
in mind, here is a look at some of the more common small
business tax misperceptions.
Business start-up costs refer to expenses incurred before you
actually begin operating your business. Business start-up
costs include both start up and organizational costs and vary
depending on the type of business. Examples of these types of
costs include advertising, travel, surveys, and training.
These start up and organizational costs are generally called
Costs for a particular asset (such as machinery or office
equipment) are recovered through depreciation or Section 179
expensing. When you start a business, you can elect to deduct
or amortize certain business start-up costs.
For tax years beginning in 2010, you can elect to deduct up to
$10,000 of business start-up costs paid or incurred after
2009. The $10,000 deduction is reduced (but not below zero) by
the amount such start-up costs exceed $60,000. Any remaining
costs must be amortized.
2) Overpaying the IRS Makes You Audit Proof
The IRS doesn't care if you pay the right amount of taxes or
overpay your taxes. They do care if you pay less than you owe
and you can't substantiate your deductions. Even if you
overpay in one area, the IRS will still hit you with interest
and penalties if you underpay in another. It is never a good
idea to knowingly or unknowingly overpay the IRS. The best way
to "Audit Proof" yourself is to properly document your
expenses and make sure you are getting good advice from your
3) Being Incorporated Enables You to Take More Deductions
Self-employed individuals (sole proprietors and S Corps)
qualify for many of the same deductions that incorporated
businesses do, and for many small businesses, being
incorporated is an unnecessary expense and burden. Start-ups
can spend thousands of dollars in legal and accounting fees to
set up a corporation, only to discover soon thereafter that
they need to change their name or move the company in a
different direction. In addition, plenty of small business
owners who incorporate don't make money for the first few
years and find themselves saddled with minimum corporate tax
payments and no income.
4) The Home Office Deduction is a Red Flag for an Audit
While it used to be a red flag, this is no longer true--as
long as you keep excellent records that satisfy IRS
requirements. Because of the proliferation of home offices,
tax officials cannot possibly audit all tax returns containing
the home office deduction. In other words, there is no need to
fear an audit just because you take the home office deduction.
A high deduction-to-income ratio however, may raise a red flag
and lead to an audit.
5) If You Don't Take the Home Office Deduction, Business
Expenses are not Deductible
You are still eligible to take deductions for business
supplies, business-related phone bills, travel expenses,
printing, wages paid to employees or contract workers,
depreciation of equipment used for your business, and other
expenses related to running a home-based business, whether or
not you take the home office deduction.
6) Requesting an Extension on your Taxes is an Extension to
Extensions enable you to extend your filing date only.
Penalties and interest begin accruing from the date your taxes
7) Part-Time Business Owners Cannot Set Up Self-Employed
If you start up a company while you have a salaried position
complete with a 401K plan, you can still set up a SEP-IRA for
your business and take the deduction.
A tax headache is only one mistake away, be it a missed
payment or filing deadline, an improperly claimed deduction,
or incomplete records and understanding how the tax system
works is beneficial to any business owner, whether you run a
small to medium sized business or are a sole proprietor.
And, even if you delegate the tax preparation to someone else,
you are still liable for the accuracy of your tax returns. If
you have any questions, don't hesitate to give us a call
today. We're here to assist you.
To read this & my other articles online go to
and click on the Newsletter section.
always you can call me at 714-619-0667 if you have any
questions about investing, retirement or any other tax &
accounting related issues.
Regards, Monica Rebella, CPA/IAR
President, Rebella Accountancy