Dollars & Sense Taxes & Accounting

Even the cheapest medical care is expensive. Healthcare costs are getting higher and we’re not getting younger. Tracking your medical expenses can be worth the time and effort—especially if they become tax deductible.

Make sure you take the deduction for your medical expenses, if you qualify.

The IRS allows you to deduct a portion of your medical expenses. The amount that exceeds 7.5% of your adjusted gross income (AGI) can be deducted. Report the deduction on Schedule A, as an attachment to Form 1040.

1. Calculate your AGI by completing the first page of Form 1040. The figure you have at the bottom of the page is your AGI. Simply stated, It is your income less certain allowable deductions.

2. Multiply your AGI by 0.075 to calculate 7.5%. For example, if your AGi is $60,000 your medical expenses will need to be more than $4,500 to take this deduction. Read the rest of this entry »

As you gather information for your 2007 tax returns, you may need to refer to prior year returns. Do you know where your archive records are? Are they in the basement, or storage closet? Or perhaps they were they destroyed in a flood or disaster? Did you lose them during a move?

While I generally advise clients to keep their tax returns for seven years, it doesn’t always happen. If you can’t locate or retrieve your tax records don’t fret! The IRS can provide transcripts and copies of documents you’ve files and information about your account.

The IRS can provide two replacement documents, a tax return transcript and a tax account transcript. First determine which document you need, as they vary greatly.

A tax return transcript shows the majority of your tax return including any attached schedules and forms. This document should contain the exact data as you reported it. However, it does not show changes or payments made after the return was filed. (Most financial institutions will accept this document as verification of your income.) Read the rest of this entry »

Be careful in your correspondence with the IRS. Navigating a reply to an IRS notice can be tricky.

April 15th passed and my friends’ father had not paid his taxes. October 15th passed and he still had not paid his taxes. Not too long after, the IRS sent a request for his tax return. He, being the polite gentleman he is, responded with a simple letter. It stated he was not paying his taxes “as a conscious objector to this illegal war in Iraq.”

Care to guess what happened next? Well, within days of receiving the notice, the IRS froze his bank accounts. They withdrew the amount they assessed in full immediately. He sealed his own fate by specifically stating that he refused to pay his taxes. Had he not made that statement, the levy might not have taken place—at least not as quickly.

Don’t rush to add levies to your list of nightmarish images of the IRS. They usually levies only after three requirements are met:

1. They assess the tax and send you a Notice and Demand for Payment;
2. You neglected or refused to pay the tax; and
3. They send a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. Read the rest of this entry »