Sunday, December 28, 2008

Getting Ready for Tax Time - Tips to Help You Optimize Your Legal Deductions

In less than a week, Congress and the Executive Branch will begin to put the 2008 Tax Year together.

One thing I cannot stress enough is, contact your Senators & Congresspeople regarding the Alternative Minimum Tax (AMT). Last year because so many tax pros got the word out to their clients, and those clients also contacted their Washington representatives, the AMT had a 'bandage' applied, but it wasn't fixed. This year so many other things have the attention of the American Public, this BIG PROBLEM is being ignored. It ain't over until the Fat Lady sings, and the Fat Lady in this case are the Citizens of the U.S. If the AMT is not done away with, it will crush the middle class ($36,000.00 - $195,000.00) We have lost on our Personal Deduction amount this year as well. When you consider all the losses by the middle class in the past 4 years, it is crushing.

Many taxpayers (workers) come to January - April, and want the process to be painless and quick. Sometimes by taking a little time and work, their tax burden can be reduced even by a few dollars.

If you use Jackson Hewitt, they can perform a tax optimization for you for free. They can prepare your taxes "short form" (a regular 1040A with no deductions), and then with your legal and documented deductions, can show you the difference. If you are better off taking itemization's you will pay a bit more for your Preparation Fees, but it may be worth it. It is always worth a look-see.

I. Medical Deductions: If you are insured through an employer, most Insurance is taken out pre-tax. This means instead of getting a tax deduction at the end of the year, your employer and you are given a benefit of a "deduction" off of your total taxed income. This causes many taxpayers to think they are all tapped out on Medical Deductions, and it isn't worth it to consider possible Medical Deductions. This is not always the case.

Remember: You get to count the total dollar amount paid on legitimate medical expenses, (you don't get another deduction on that pre-tax amount) toward your 7.5% required to receive a deduction for Medical Expenses paid.

States: Some States allow Itemization for tax payers who may not be eligible to Itemize on their Federal Return. If you do your own taxes, make sure to include all legal deductions in the body of your Federal Return, so possible legal State deductions will roll down. I use TaxSlayer through IRS Free File. As a tax pro, I highly recommend it.

Your W-2 Should show these amounts in the boxes on 12 or 13, sometimes they don't. If you are Self-Employed, unless you have set up a pre-tax account, you can deduct all unreimbursed, out-of-pocket paid, medical expenses. If you claimed the self-employed health insurance deduction on the 1040 line 29~be careful not to give yourself a double deduction - reduce the amount of premiums paid from the amount on line 29.

  • Medical Mileage: for 2008 we lost 1 cent. It is now .19 per Medical Mile. Depending on where you live, those miles can add up. (Some Flex-Plans and Health Savings Accounts, also allow you to claim your mileage throughout the year as well, and if you have elected to do this, you probably won't have reason to file for a Medical Deduction). You can claim forms of Transportation to get Medical Care; Ambulance, Taxi, Plane, or a personal vehicle. Parking and Tolls are included. [Only deduct one time per tax return for the year].
  • Prescription medicines or insulin. (if you have a Flex-Plan, or HSA, you have received the 'deduction' pre-tax, you will be counting it toward total medical expenses paid in.)
  • X-rays, Labs, Doctor ordered treatments such as whirlpool baths
  • Nursing Help - You can include the deduction for Employment taxes paid here. [Again, be careful not to double-dip].
  • Hospital Care- Includes Meals, lodging [no pleasure expenses: limit of $50], clinic costs (If the care is critical, and a family member is paying for parking, etc) - Doctor Verified.
  • A Portion of Qualified Long-Term Care Services [Pub 502]
  • The Supplemental part of Medicare Part B & Premiums for Part D
  • Smoking Cessation Program
  • Weight Loss to treat Obesity diagnosed by a Dr.
  • Medical Treatment for Drug & Alcohol addiction
  • Aids - Glasses, Contacts, Hearing Aids, Braces, Crutches, Wheelchairs, Guide Dogs (Including the cost of taking care of the service Animal)
  • Laser Eye Surgery or Radial Keratotomy
  • Certain Med Expenses paid out of a deceased taxpayers Estate, can be claimed on the deceased taxpayer's final return.

Free Tax Tips: You must have receipts, your books, or other Documentation at the time you sit down with your Tax Pro. This year more than before, tax pros are under the gun to make sure their clients have legit deductions.
Q. What if I haven't kept a record of all Medical Mileage?

A. [Don't dump a load of receipts on your Tax Pro, unless you like paying big bucks. Don't think it is funny to dump a giant box of receipts during an IRS audit, you will not be smiling when it is all said and done].
1. Contact each Medical Provider you had throughout the Year. Ask them for a Print-out of all visits. Put in this request at the first of 2009, because the longer you wait, the more backed up Medical Provider's will get with these type of requests. Because of HIPPA, it is not as quick and easy as it used to be.

2. For each visit, go to Google Maps, Yahoo Maps, an atlas, or any other legit method of finding mileage to and from your home, to your provider. If it is the same one each month, it will be quite simple. If you have had a heartbreak year, it may take you a lot of time and work. From now on, you can keep a log as you go. You can use Excel, Access or several other software programs to keep track of all of your expenses through the year. Even a cheap notebook kept in your vehicle or home office will suffice. If you are Self-Employed, you are in violation if you are not keeping records and books on expenses and payments.

3. Use bank statements that are clearly marked as to the nature and payee of an expense. You can make these part of your records. Keep in mind, during an audit there can be questions about any and all expenditures and receivables included in those statements.

Using your personal vehicle -
A. You need to know the type of car, truck, suv - ie; 2008 Toyota Tundra.
B. You need to know the total price paid [sticker incl financing], or lease amount.
C. You need to know the first date you used this ride for medical purposes (this goes for other vehicle use expenses too)
D. You need to know ALL of the miles put on the vehicle for the Entire Tax Year. (If you are using actual expenses, you must have record of everything claimed.
E. You need to know Business Miles put on the car, truck, suv.
F. You need to know Charitable Miles put on the ride.
G. You need to know Commuting Miles (non-deductible)
H. You need to know the mileage for any other use - vacation, store, mother-in-law...
I. You need to have any amounts that were reimbursed.

Hoping this will help. Although it does put a glazed look in your eyes. :8 - >

My next post will be concerning Charitable Mileage,
Then, Business Mileage. Stay tuned little deer...