When I first came to this site in 2006 (thank you Brian) a few posters asked if I would answer some tax questions on deductibility of our medical expenses like travel, room and board, supplies and equipment, etc. I agreed and Brian agreed so off it went. I also expanded it to answering any income tax question and offered to answer questions off site as well. It was popular so I done it every year since.

Here's how it works. If you have a question that pertains to medical expenses ask it on this post. If you have an unrelated Federal income tax question PM or e me.

Remember I am not your paid preparer and am doing this to help you and Brian is allowing this as a benefit to all users so don't even think about suing either of us if I give out incorrect information. If that's agreeable then ask away.

David you are a very good person. I'm sure that you are just swamped at this time of year and to offer to help people is just wonderful of you.

Patty

Dave, No questions just a Thank You for being so kind and generous for those on OCF that may need advice!! Semper-Fi Bob

David,

I would like to know how to forget to pay thousands upon thousands of dollars in taxes, and never get caught until I'm appointed to some office. Can it realistically be done or am I just dreaming?

It can be done without even getting caught on appointment, but the people who know how to do that successfully don't talk about it.

I'll bet the good Senator is wishing he had listened to his tax guy a few years ago when he recommended declaring it! Esp now that he not only lost the appointment but paid the taxes. Not much sympathy coming from people in the process of doing their own taxes!

We in CPA land have talked about this for a while and we find it incredible not in how one doesn't pay their fare share but the audacity they must have to do it, and knowingly, and still run for a position that clearly puts them in THE SPOTLIGHT.

I've been a Lobbyist in Congress for the ABA and believe me hypocacy has existed in Washington for many many many years.

Yeah. well I won't defame any prominent people, but let's just say that some tax cheats had thought they could be top level executives in the IRS until they found about the requirement to formally request an audit themselves. Amazing how many otherwise qualified candidates suddenly discovered "personal reasons" to withdraw their applications. I always thought it was strange that the IRS Commissioner and Chief Counsel, the two presidential appointments had to be fully tax compliant (not belated nor retroactive) but no such requirement for their ultimate boss the Secretary of the Treasury.

I have always thought that anyone in public office..local, state or national should be required to pass a tax audit.

The most stressful thing to me each year and yes, I am in the throes of preparing our tax return, is making sure I have reported everything correctly and completely. It pisses me off that someone being paid by my tax dollars is not doing the same.

David (Brian), perhaps a link to the IRS site (page) where medical deductions are listed in a very comprehensible way would be helpful. I just looked at it over the weekend myself...it is easy to understand. Biggest change this year looks like the mileage allowance changes midyear from 19 cents per mile to 27 cents.

Thanks David for the offer of help...wish I could just hand it all to you and have it magically done. That's what my BIL thinks happens..."you just hand the papers to the CPA and they just figure it out." Obviously, he is not in charge of getting the returns ready for the accountant each year.

Deb

Great minds think alike (you and Brian). Actually Brian suggested that I do just that about 2 years ago and I told him that to put something like that into words I would have to reprint the IRS' instructions almost verbatim. When dealing with the law or an interpretation of it you have to be very careful in picking your words so when the IRS writes their instructions they necessarily have to be very complete and therefore verbose. I just would rather answer specific tax questions than try to cover every possible aspect of this one type of deduction.

My first real job was working for IRS as a Taxpayer Service Representative for the 1976 filing season. This was a GS-4 position and I was one of those who answered questions on the 800 phone line. I received 1 and � months of training and of course became an instant tax �expert� (an internal study at that time showed that 30-40% of the answers given over the phone were in error).

Craig and I had just finished two years in the Peace Corps immediately following college. One of the requirements of this great IRS job was that the past three years of our income tax returns were audited. Since our combined annual income for each of our PC years was $1800 (well below the amount required to file returns) and no income tax was withheld (no need to file for a refund) we did not file returns for 1973 and 1974 (perfectly legal). Well, the auditors went nuts!!! How could IRS hire a GS-4 (salary about $7,000/year) who hadn�t even filed returns for two years? How could two people survive on such a paltry gross income?? We must have cheated on our taxes! We must have been anarchists!! I almost wasn�t hired.

My potential immediate supervisor was so desperate for one more warm body that a compromise was arranged with the auditors. I received a very severe �Letter of Reprimand� which stated that if I ever failed to file returns in the future I would be rounded up and shipped off to Alcatraz.

I ditched this job mid-February for a better one at a different agency. My boss was furious that I �took advantage� of their extensive training and didn�t even finish the tax season!

Needless to say, I always make sure I file our income tax returns in a timely fashion, knowing that somewhere out there, IRS has a folder on me, labeling me as a scofflaw!


Thanks David for your generous offer to answer questions for us. This certainly is �Above and Beyond�.

David,

I think you are reading these posts too fast in between all the other stuff that is biting at your rear end.

What I suggested was to post a link to the actual IRS website page that explains medical deductions. I would, but didn't want to if it wasn't approved. I found that it was very helpful and not confusing at all and I was able to read it in about 5 minutes and glean the info I needed.

Anyway, if anyone wants a general idea about what medical deductions can be taken, limitations, etc. and doesn't want to bother David just Google IRS.gov and go from there. Pretty easy to find.

David, if I sound like I'm bit**ing, I probably am...too many males in my life right now that don't listen. Anyway, you are kind to offer help to everyone and I was just trying to make your life a little easier since the website explains a lot.

Deb

My father's only employer was the U.S. Gov't. Out of college and into the army, WWII, and from the army to the IRS as a TAX MAN, now called Collections Officer so I grew up with the IRS. My dad worked a lot at home. In fact our dinning room table was his office and he use to keep U.S. Gov't ballpoint pens in the buffet table, hundreds of them. When I was growing up my brother & I would ask to use one of those pens for homework or playing cards and he would tell us NO WAY, the're the property of the U.S. Gov't. When he died 2 years ago he still had those pens in the dining room drawer. I kept one as a souvenir but I still won't use it. He also prepared my income tax returns until he thought I was able to do them by myself.

David,

Thanks for sharing this memory of your father. It took me back to a pleasant place in my own life that I haven't visited in years.


[quote=davidcpa]My father's only employer was the U.S. Gov't. Out of college and into the army, WWII, and from the army to the IRS.... My dad worked a lot at home. In fact our dining room table was his office and he use to keep U.S. Gov't ballpoint pens in the buffet table... [/quote]

Except for a different government agency, this is my dad. He died 11 years ago. He was the most honest person I have ever known, and he too had rules about the use of those black ballpoint pens!

When he would tell my brother & I those pens were OFF LIMITS AND PROPERTY OF TH US GOV'T we would look at each other and whisper, "then why don't you keep so many?" Never did ask him or get the answer.

One or two would come home in that pocket protector each day!

Heck, even old Jim here can do taxes, long or short forms. I had a lot of greatful friends when I was wroking for doing their taxes and no charging them. I did go to college for Business Admin and Accouting. LOL I had to be truthful.

Jim,

Great to see you posting again.

How are you feeling?

Is there anything left that they haven't done to your body?

BTW we don't refer to them as the long and short forms anymore. Not since 1986 anyway. lol

Come on posters I know you must have some noteworthy tax questions.

Does everyone know about the first time home buyers credit or should I say 15 year interest free loan up to $7500? A first time homeowner is defined as someone that hasn't owned a home in just 3 years so if you sold your home three years ago and just purchased another one, you qualify. No age limitations either. Unmarried people are also able to split it anyway they want.

TAxpayers still refer to them as the long and short forms -- Old habits are hard to break.

I'm glad to see you refer to the so-called 'credit' as a loan; although most people (not pro tax preparers) don't know the difference between a deduction and a credit, I believe it is still disingenuous of those in power to refer to this program as credits.

Those unmarried folks who split the "credit" are going to have fun paying it back in the future, esp if they are not friends at the time. I recall when my sister-in-law's husband decided to 'find himself', quit his job, divorced and went off -- He cashed in all his tax-deferred retirement stuf (IRA, 401(k)) and then lost the money when he invested it in a business -- Since he was unable to pay, the IRS turned to sister-in-law to collect, although she had never touched the money nor was any of it in her name nor was she married to the guy when he did it -- They didn't get any money from her, but it sure cost her time, aggravation and money to get them off her back!

Since I am still a recovering lawyer, I need to point out that under the current Senate Bill, the 15K is no longer a loan, but a real tax credit that need never be repayed. As PeteD noted, the prior "credit" was and is fraudulent since it must be repayed and therefore is a disguised loan. Of course the worse rip of all is the so called Rapid Refund or Refund Anticipation Loan with APRs > 200% .

Those 'Rapid Refunds' should be illegal! In my Opinion, of course!

You must understand the mentality of the person demanding it. They don't have credit; they don't have a bank account; they don't trust the IRS or the Gov't for that matter and above all they needed it yesterday. So even if they have usurious interest rates they couldn't care less that they are paying $130 today to get $7000 tomorrow.

Never waste your time reading any tax proposals or even things passed by one side of Congress. Please do yourself a favor and just wait until it's signed into law.

David

I understand all too well the lure and attraction of RALs. Not only what you set forth, but also that the entire tax preparation fee, filing, nickel and dime etc are all also paid by the RAL so no money out of pocket.
Anyway, you are to be commended for your offer. I broke down years ago and switched to commercial tax prep software, doing the AMT all over again just was too much. Keep up the great and good work.

I like your new signature Charm.

Patty

The new housing tax reduction of up to $15k is for any home buyer, not just a new owner. So far, I dont think this has passed yet. Im crossing my fingers it does go thru, but not counting chickens before they are hatched.


http://money.cnn.com/2009/02/09/real_estate/tax_credit_near/index.htm?postversion=2009021007

From your link, "One major objection is that the credit is available to existing homeowners, who would essentially be selling house A to buy house B and thus have no stimulus impact on the economy. Baker called it a "house-flipping subsidy."

This overlooks the transaction from a realtor's viewpoint, what with a sales commission involved!

Im hoping it goes thru. I would love to sell my house this year. When 'flipping house A for house B' it still puts money into the ecomony. Always need new household items when moving. Also truck rental or movers, carpet cleaners, painters, etc are all hired (at least by me) when buying and selling a home. I dont want to get political, but personally I think it would be helpful to get the real estate market moving again.

Please avoid discussions on tax laws that aren't. You'll drive yourself crazy (earlier than necessary that is) and may confuse people into thinking that particular feature is already law. I get clients calling me all the time about "tax laws" that never made it out of conference. I have enough to keep up with what's already on the books!!

As soon as something passes and is signed into to law I'll try to post a bullet point summary.

David

To get things back on track tax wise, here is are two medical deduction tax question: The first is just hopeful and as far as I know only has a resounding "NO" as answer'
1. Any loopholes on getting around taking the 7.5% of income bite out of the deductions that appears on Schedule A?. Until I had cancer last year, that zeroed out any and all medical deductions. While my deductions this year will still easily exceed the 7.5%, it would be nice if I could recoup some of that amount also.
2. do you find Turbo Tax or Tax Cut better or about the same?
Sorry to have derailed earlier about the non existent credit.

I find Tax Act meets my prime criteria (free!) -- I haven't done them yet this year but it did a good job last year -- It won't let you save them after doing them, without a fee, just print them. The way I got around that was to install (free) PDF995, a application that emulates a printer but stuf sent to it becomes a PDF file, which can then be saved or printed.

https://www.taxactonline.com/index.asp

I used to use TurboTax, all the way back to the '80s I believe, but they started getting too expensive.

However, the program isn't as important as the operator's grasp of the tax system -- It's very complex, so it's easy to run the tax program incorrectly, especially for non-standard stuf.

I'm guessing that David uses proprietary tax-preparer software which have lots of features beyond the actual return preparation to keep track of hundreds of clients -- I only have one client, a cheapskate, and keeping track of him is easy, as long as I can keep the rats away from the paper files!

Charm,

Are you self employed or an employee? If an employee are you covered under a medical plan now? Easy answer to your 7.5% threshold problem is yes you can but I need more info.

Re the canned tax software, I wouldn't trust any of that stuff for anything other than the simplest of returns. Sad but true we even find errors in our expensive software that once pointed out early in the season is corrected quickly and the fix is downloaded. I download updates to my tax software 2 to 3 times A DAY as forms are constantly being approved by the IRS for E filing so how can a $19.95 disk that is produced in say August and hits the shelves in December be anything close to accurate?
As you know our tax laws are extremely complicated and interwoven where one small word change could impact 10's of code sections therefore resulting in changes to numerous forms. Even the IRS's computers are often not sophisticated enough to catch software errors which may or may not be harmful to the user.

I use the canned software more to avoid computational errors on my part and produce a legible, typed return than for any other reason -- My returns are simple, using the most common forms, so I trust the software to handle that without major errors.

I once used a version of Turbo Tax to prepare my own return and my newly ex-wife's return -- It was a year they were playing around with formats, so the return produced did not resemble the standard forms -- Rather, the form number and line numbers appeared along with the amount entered by the user, and ONLY those numbers appeared, the theory being that the program and the IRS computers would only trade the user-entered fields and would do their own computations from that -- A few calculated fields were printed as markers and to ensure that each form was a match to the rest of the return -- Looked like gibberish to the untrained eye unless one had a copy of the program to run it through.

I did the taxes because in our divorce we split all our stuf, including investments, down the middle -- She had then, with our financial advisor, sold most of the growth stocks and mutual funds and replaced them with income-producing investments, creating a lot of capital gains tax accounting entries and calculations. I already had the copies of statements with the original costs, so I figured it would be easiest for me to do her return and save her the money.

I made the 'mistake' of providing her with only a copy of what was to be sent to the IRS to be scanned and processed, the original so to speak -- I didn't bother to produce or store a paper copy of what the forms would have looked like -- All I retained in my records was the file saved to my computer of the program's results.

Mistake number two was that I sent them to her with a hand-written note to the effect that if she had any earned income in that year, she was going to either have me re-do her return or have a tax preparer re-do it and not to submit the original non-standard form. I didn't make or keep a copy of the note.

Final mistake was that I didn't make a copy of the Turbo Tax program itself, to go with the stored file version of the return.

She had apparently taken a job and received one paycheck in late December of the tax year but lost, discarded or ignored my handwritten note and just mailed the strange return in. Of course, the unreported income eventually popped out at the IRS and they sent something to her about it all -- I was full-timing in my RV and off somewhere with voice mail service just piling up for a few days, so she panicked and went to see a full-bore CPA.

He/she was thoroughly perplexed at first by the printout send to the IRS for scanning and processing, finally recognizing it and reconstructing the entire return for examination and input to the practice's software, along with her previously reported earned income, which took a few billable hours, for which she was subsequently charged. I don't know the details, but from the way she was acting, it's likely that the CPA's one-time learning curve cost more than the original paycheck, much less the tax that was unreported (and probably paid by withholding anyway).

I learned a few things from that incident, for sure!

Pay me now or pay me much more later. lol

David,

What is the advantage of using a CPA vs Turbo Tax? I have a very good reliable CPA that I'm happy with, but, I'm just wondering if Turbo Tax is worth it. I was audited in the late 90's and that kind of spooked me and I've been seeing a professional since. Every one around me is switching to Turbo! I know this year I will do my taxes through Turbo; however, it will not be sent because I want to see the difference between Turbo and my CPA's work. I'm curious.

And last year I was on short term disability through work and eventually knocked down to half pay, is there any tax benefits there? What about mileage to txs?

Thank you!

Ray,

The same advantage going to see your RO versus using Wikipedia to diagnose you. If you have a common cold comparing that to a very simple return with only W-2 income and not itemizing your deductions then a visit to Walgreens or in the tax world Turbo Tax (or even the IRS' own tax software)would be OK but if you have more complications in your health or tax world then a licensed physician or licensed CPA is the logical choice.

Re half pay....only advantage is you will incur less income tax.

Re medical mileage....definitely deductible as an itemized deduction. For 2008 miles driven between Jan 1 and Jun 30, 19 cents per mile and from July 1 thru Dec 31, 2008, 27 cents per mile. Remember your chances of being audited are very slim so if you didn't keep a mileage log book that few seldom do, just write down how you arrived at your estimate and keep it with your tax records.

Also deductible are lodging for you and even for someone with you to help. Meals are not deductible though on the theory that you would have to eat regardless of where you were.

When dealing with unusual medical expenses it's always a good idea to get your doctor to write a letter saying it's medically necessary and recommended. That's not a 100% guaranteed deduction but as close as you can get.

The main problem with medical deductions is that first you have to be able to itemize your deductions, i.e. expenses that exceed the "standard deduction" for your filing status plus you only get to deduct those that exceed a whopping 7.5% of your adjusted gross income which is usually limited to only those with very high unreimbursed medical expenses. Congress has enacted many Code sections that allow employers, including yourself if you are self employed, to provide medical reimbursement plans that permit you to make contributions to them with pre tax dollars and then pay medical expenses thereby avoiding the 7.5% threshold. Plan requirements do vary from simple to complex so read up on them or consult with a professional before you make a choice.

[quote=davidcpa]Ray,
Re half pay....only advantage is you will incur less income tax. [/quote]

In Canada, if we collect long term disability insurance payments and have paid the premiums ourselves (rather than the employer paying the premium) the benefits are not considered taxable income. Is this the case in the U.S.?

Mike T,

To answer your question, in the U.S. payments from an accident and health plan are excludable from an employee's income to the extend that the plan providing the benefits is funded by the employee.

Ok, thanks David. Same rules as Canada by the sounds of it. Hopefully everyone who's affected is aware of this.

The difference between using tax software (free to pay) and a tax preparer (HRBlock-style to CPA/Tax Attorney) is going to rely on how well you know the ins and outs of YOUR tax situation -- Consumer tax software (not the pro stuf David uses) is designed to basically fit the needs of the average tax-payer, not someone all wrapped up in odd situations -- The human knows what questions to ask and the software, although it may ask a LOT of questions, may not even be in the right ballpark.

Also, the human pretty much knows what will fly, what will not, and what *might* fly.

I just happened to look at free Turbo Tax, because it was in an HP ad I got, and it won't even do a 1040 with Schedule A, just a 1040EZ.

The one I just got through using, free Tax Act, had a glitch in it that somehow had me making a vehicle donation of $81 -- I just couldn't get the software to shake loose of it! Since my standard deductions happened to exceed my income this year, I decided to just go that route and let the flawed program just print out my return nice and neatly.

Had I not been paying so much attention to my cancers this year, I would have brought some of my tax-deferred IRA investments out and let my itemized deductions "shelter" that income, but I didn't. I won't let that happen this year, because I expect the deductions will be about the same.

Just a note to those in the throes of treatment and incurring lots of miles to and from the doctors/hospitals/labs/treatment facilities.

For the year 2007 (the year of cancer for us) I googled a calendar that had a large format and printed it. Then, by looking at EOB's, receipts, check registers, and credit card statements (also you can have your RO/MO print out a list of treatment days)...I filled the calendar in with visits on each day...sometimes it was multiple appointments. For each provider, I figured mileage from the house and back. I wrote that in each day block and figured the week total and then the monthly total. You would be amazed at how many miles you rack up when faced with the medical issues we here have faced.

Most of our doctors live within 7 miles of our house (14 roundtrip) with the exception of the CCC in Tampa. Bill's biopsy, PEG and Port placement, rads and chemo all were done locally and we still racked up almost 1600 miles. So with all your copays and deductibles, prescripton and premiums...you would be surprised at what that totals to. It might be worth the trouble to document...it was for us in a year of lower income.

Hope this helps, Deb

I am in the habit of keeping a small weekly calendar book every year with all my appointments in it -- At the end of the year, it's easy to go through the book and mark down how many visits and to where -- I print out the routes from Google Maps and keep them with my tax papers, plus a worksheet of miles x trips, plus ferry and parking if involved. The appointment books are easy to store (I have 11 years worth right now) and have other info, like where I camped each night when I was living in my RV.

All good suggestions and remember ANYTHING you charge by credit card is deductible in the year you charge it, not the year you eventually pay it.

As for the canned tax software that is in stores by turkey day and is not supported with updates......again I caution you to be VERY CAREFUL as many many many forms are not even approved by the IRS until well after the filing season begins meaning that if you use one that isn't approved it may not contain the current law. This type of software also can't respond to laws passed late in the year which may retroactively apply to the current filing year. For instance just this year the Recovery and Reinvestment Act contains a new credit for "1st time home buyers" that allows a qualified purchase made in 2009 to be treated as made Dec 31, 2008 so that it can be claimed on 2008's return. The IRS has already made changes to the form and I'm waiting for my software provider to provide me with the updated form. That one feature alone would prevent you from getting your money a year early.

David,

I can tell you that even with accounting knowledge and my anal retentive records, I would never try to do my own taxes even with software help. I can provide good info and records but my eyes start crossing when reading the tax code and I leave it to the professionals. Its expensive but one that I am willing to pay for good oversight.

Thank you to David and all good CPA's!

[quote=davidcpa]All good suggestions and remember ANYTHING you charge by credit card is deductible in the year you charge it, not the year you eventually pay it.
[/quote]

David, I'm confused by this. Do you mean any interest you pay on your credit card account is deductible in the year it was paid, regradless of when the purchases were made? This was my understanding.

Thanks for your tax help!

Well credit card interest is no longer deductible, hasn't been for many years, unless it's for a business or a business item purchased on a personal CC.

What I trying to say is that lets say you get a doctors bill in 2008 and you don't have the cash to pay it so you decide to charge it on your CC. It's still a medical deduction for 2008 even if you don't repay the CC company until years later. Same rule applies to real estate taxes, contributions, etc charged on a CC.

[quote=davidcpa]Well credit card interest is no longer deductible, hasn't been for many years, unless it's for a business or a business item purchased on a personal CC.
[/quote]

The above is what I thought. Since we have only one credit card and pay it off every month, it really isn't an issue for us.

I understand now that you were talking about payments of deductible items with the CC.

Thanks for the clarification!

David,
I just noticed that this year and last year, that the amounts for my medical, dental and Long Term Insurance care are all coming out of pretax dollars like they are part of a Cafe plan. This means they cannot be used as part of the 7% for medical dedcutons and of course also reduces the amount that is eligble for Social Security.

Is my 1099 correct? When did the law change? Neat way for the government to disallow our medical deductions and also lower what we will eventually collect in Social Security. Of course it saves a few pennies on the federal tax.

Take care,
Eileen

Eileen,

Not sure what you are talking about? First you say the premiums were taken out of Pre Tax dollars, which is a good thing, but then you mention a 1099 so are you talking about Social Security?

David,
I still work. What I am saying is that because the medical insurance payments are coming out of pretax dollars, unless your salary is more than the maximum taxable amount for Social Security, the amount that SS will use when calculating your benefits when you go to collect will be the lower amount and thus your SS benefit will be lower. This could be significant depending on the cost of the insurance.

The medical insurance didn't use to be pretax dollars. Do you know when the changed the law? It also means I lose $7000 to $8000 in other medical deductions. Not a good thing.

Eileen

Eileen.

There hasn't been a change in any tax laws that universally affect employees insurance payments. I'm still not sure what your question is though especially when you say you are paying for your insurance in pre tax dollars, which is good, but then you say you are loosing 7 to 8 thousand dollars in medical deductions? If you want you may call me at 727-322-5669. Maybe you can make my thick head understand what you are trying to ask me?

Tax time for individuals is getting close so I'm moving this back to the top for those that may not have seen it.