Posts Tagged Relief

Claiming Qualified Long Term Care Expenses As Medical Tax Relief and Deduction

Posted on July 22, 2011 | Tax Studies.

Under the Federal tax code, long-term care services provided for medical reasons are an allowable expense to deduct. However, according to Sec. 7702B(c)(1) of the Federal law, a licensed physician must prescribe such care as being fundamental for the well-being of the patient. Long-term care deductions allows for people who have chronic diseases and conditions of incapacitation to receive long-term care, including an attending nurse or caretaker, without paying taxes for such services. There are various rules and qualification guidelines that govern the application of this tax deduction.

Qualification Requirements

The long-term medical care can only be claimed by taxpayers who itemize their tax deductions as opposed to using standard deductions. You therefore, need to use the right Form 1040 to benefit from these long-term care expenses and have them deducted. The expenses also need to have support documentation. The person claiming the deduction must maintain the doctor’s statement that prescribed the care, including the diagnosis of the medical condition. Besides the doctor’s statement, one also needs to keep the receipts or payment vouchers for such medical care. All other tax requirements, including withholding of taxes for any employees involved in the long-term care, need to be adhered to.

Itemized Deduction

Itemizing of tax deductions is more complex than taking the standard deductions route. A taxpayer itemizing deductions needs to schedule all the tax-deductible medical expenses that need to be itemized and determine if the expenses exceed 7.5% of his or her Adjusted Gross Income (AGI). Therefore, for itemized expenses to qualify for deduction, a taxpayer must have above this 7.5% threshold in total medical expenses. There is however, no cap or maximum for these itemized deductions.

Case in Point – IRS vs. Estate of Baral

In some instances, the IRS has differed views with taxpayers on what qualifies as long-term care as prescribed by a physician. This was the case for Lillian Baral, who had been diagnosed with dementia. The doctor recommended long-term care and Baral’s brother, who was her financial trustee, employed two caretakers to attend to her. The condition of her illness deteriorated her mental and physical capacity and she finally succumbed to her infirmity in 2008. Due to her condition, she did not manage to file a return in 2008 for the 2007 tax year. Since no tax return was filed, the IRS decided to use their estimate and determined that she had earned incomes of $94,229.00 and had underpaid taxes by $17,681.00. However, in their calculations, the IRS did not allow for the inclusion of her long-term care expense – Baral’s brother had paid $49,580.00 to the caretakers and had also reimbursed expenses of $5,566.00.

The issue was referred to a tax court to determine if the IRS was just in their actions. In the ruling, the court held that the wage payments to the caretakers qualified as long-term care for tax purposes and that the IRS was out of order to have these expenses excluded for tax deductions. The court however, held that the reimbursed expenses could not pass for the deductible of long-term care expenses as there were no receipts (support documentation) to support these expenses.

Tax Relief and Tax Deadline Extensions for Storm Victims

Posted on June 8, 2011 | Tax Studies.

Various parts of the United States have been hit by storms and bad weather since the beginning of 2011. These areas include Joplin, Missouri, which had about 132 people die and a further 156 missing as of May 2011 following a massive storm. Other areas hit by storms include parts of Mississippi, Georgia, Kentucky, and Tennessee. There are many who have lost loved ones, property, jobs, and their whole neighborhood.

The stories, scenes, and impact of the storms have been a sad tale and well wishers and volunteers continue to help with relief of any kind towards the victims. The IRS has also provided extensive tax relief to many victims of these areas hit and has also extended various tax deadlines to give time to the victims to recover from the impact of the natural catastrophes.

The IRS has pushed the tax deadline for taxpayers who are residents of areas that have been hit by storms that started in April 2011 from the usual deadline of April 18th to August 1st, 2011. The tax deadline applies both filing tax returns and payment of due taxes.

The taxes that are affected by the extension of the deadline include 2010 tax returns and 2nd quarter income estimate installment that was due in June 15th. For the people of Jasper County, the tax deadline for the payment of federal employment and excise tax deposits that were due May 22nd had been extended to June 6, 2011. Anyone who receives a penalty charge letter from IRS for lateness of tax payment and is a resident of the areas affected by the storms can call the IRS number indicated in the letter and provide the reason of lateness to the IRS as the impact of the storm. The penalties will be automatically waived.

Besides Jasper County, there are also different deadlines that have been extended to people in different areas affected by the bad weather. Some deadline extensions for areas hit by storms are provided below:

  • For parts of Mississippi affected by the bad weather including Adams, Bolivar, Claiborne, DeSoto, Coahoma, Issaquena, Humphreys, Jefferson, Tunica, Sharkey, Washington, Yazoo, Warren, and Wilkinson, the extension for tax returns has been pushed to July 5th and that of employment and excise taxes that were to be paid by April 27th had been extended to May 18th.
  • For parts of Kentucky hit by storms including Ballard, Crittenden, Boyd, Graves, Daviess, Henderson, Hardin, Jefferson, Hickman, Livingston, Lawrence, Pike, Webster, Union, McCracken, Marshall, and McLea, the tax return deadline is extended to June 30th and the employment and excise taxes due by April 22nd extended to May 9th.
  • For parts of Georgia that have been affected including Bartow, Cherokee, Catoosa, Dade, Coweta, Gordon, Floyd, Greene, Harris, Habersham, Heard, Lumpkin, Lamar, Monroe, Meriwether, and Morgan, the deadline has been extended to June 30th and that the employment and excise taxes due by April 27th extended to May 12th.

Besides the extended deadlines, the victims of the storms can also claim Casualty Loss against their damaged property. The loss needs to be claimed in the tax year that the disaster occurred apart from the specific regions that the Federal state officially declares as disaster regions. For the later group, they can file the claim for up to one year after the damage was done to the property. The damage of the property needs to be caused by a storm, bad weather, or other sudden and unprecedented causes and not by other general and routine factors such as wear and tear.