Medical Deductions

Certain expenses such as dancing lessons, swimming lessons, health club dues, spa dues, vitamins, diaper service, teeth whitening, marijuana, nonprescription nicotine and gum, and food purchased per  a weight loss program are generally not deductible even if recommended by a doctor. To be deductible, expenses must be for the diagnosis, cure, mitigation, treatment or prevention of disease or affecting any structure or function of the body. Expenses to improve general health are not deductible.

Document Your Tax Deductions

If you are audited by the IRS, it is up to you to prove that you had a valid deduction. How do you do that? You need to keep invoices and bills that you pay. I attach the voucher part of my checks to the paid invoice which shows the date of the check and check number. If you don't have computer checks, write the check number and date on the invoice and keep them in a folder for the current year and at least the prior 3 years. Keep all of your business credit card statements that detail what you were charged. Write on the statement the names and relationships of anyone you paid a meal for. Keep all of your bank statements as the charges from debit cards can document business expenses. Pay the bank to provide check images each month if possible. It is worth the extra money. Going back and trying to get check images from banks several years old is very difficult and expensive and sometimes impossible. Also don't pay tax deductible bills with cash. Use checks.

Tips on Calling the IRS

If you need to talk to an IRS agent, you can call 800-829-1040 which is the tax help line. Give yourself about 45 minutes to be on hold so have a good book nearby to pass the time. Once you get an agent, I have found them for the most part to be very courteous, professional, and eager to help. Don't call on Mondays or Fridays as those are usually busier days for them. If you want your CPA to handle a matter with the IRS, usually the CPA needs to get a signed power of attorney form from you before the IRS will talk to him or her.

Required Minimum Distributions(RMD) for a Roth IRA?

One of the really good things about a Roth is that RMD's don't apply except for one big exception. If a non spouse beneficiary inherits a Roth IRA, then they are subject to the RMD rules and have to distribute the benefit over their life expectancy. A surviving spouse can elect to roll over the Roth to their own Roth.

Social Security Benefits before Full Retirement Age

If you choose to sign up for social security before your full retirement age (FRA) which is age 66 for those born between 1943 and 1954, your benefit will be reduced if your earned income (wages and self employment income) exceed certain amounts. The amounts for 2013 are $15,120 for years prior to the year you reach FRA and $40,080 in the year you reach FRA. The earnings limit can change every year. There is no limit to what you can earn after the month you reach FRA. Benefits are reduced $1 for every $2 you earned over the $15,120 and $1 for every $3 earned over the $40,080. This is a good reason not to take social security before your FRA.

What Medicare Doesn't Cover

Many people think medicare covers all medical expenses once you turn 65. Unfortunately, there are some very large costs that are not covered at all like nursing home care after 100 days. Also medicare does not cover hearing aids, dental care, eyeglasses,  routine foot care, and 35% of outpatient mental health care.  One thing that medicare does pay 100% for is hospice care for as long as the doctor certifies that it is necessary for the terminally ill.

IRS Installment Agreement

If you can't pay your Federal taxes, you have an option of requesting an installment agreement by filing form 9465. On the form, you promise to pay a fixed amount on a certain day each month. The IRS prefers that you set up a direct debit to your bank account each month and encourage you to do so by discounting the regular one time user fee of $105 to $52 if you choose the direct debit option. Interest of 3%(current Federal rate) and late payment penalties of .5% (25% max) continue to apply until the taxes are paid. I usually encourage clients in this situation to pay as much as they can when they can to maintain more flexibility and not be tied down to a fixed payment.