Tax Deductions Available for Cancer patients

by | Jan 23, 2021 | Tax Deduction, Tax Deduction Ideas, tax deductions, tax filing, Tax Payers, tax return, tax savings

Tax Deductions Available for Cancer patients A life-threatening disease like cancer can lead to a lot of mental unrest along with a lot of financial responsibilities. If you have a health insurance plan, then it would be helpful in providing cover for some amount of the medical expenses incurred. If you are undergoing any cancer related medical treatment then your health insurance would help in providing cover for the bills incurred. But, in the medical treatment related to these life-threatening diseases there would be some additional expenses which have to be paid by you. Also, cancer patients can avail the benefit of tax breaks on their taxes by the help of their out-of-pocket expenses. Eligibility for tax deductions which are cancer-related If you are able to itemize your tax deductions instead of making claim for Standard Deduction, then you can easily deduct those medical expenses which are related to regular care, medication, diagnosis, hospital stays, etc. if the expenses that have been incurred are more than 7.5% of the Adjusted Gross Income (AGI). Medical-related travels can also be claimed as deduction such as the mileage related to driving to the appointment at the rate of 20 cents per mile as well as travel-related to any seminars. Those taxpayers who are self-employed do not need to itemize their tax deductions for deduction of their health insurance premium. Self-employed taxpayers are eligible to deduct their health insurance premium as a deduction to their income. What would be done? Medical expenses that can be deductible are defined according to the IRS code as those costs which are related to the diagnosis, treatment or mitigation of diseases and are mainly for the purpose of affecting any major body part or function.  Various treatments related to cancer such as the chemotherapy and radiation surgery are too expensive and the arrangement of your health insurance plans will have a major impact on the coverage of these expenses. There are several categories of cancer and in case of any rare type of cancers such as mesothelioma which would need specialized care; travel is an important part of the treatment procedure. The cost involved in the travel during cancer treatment medical procedures might be tax-deductible. There is a comprehensive list of costs which would qualify for a tax deduction and this list would include health insurance premiums which are not paid in pre-tax dollars. You might pay for the medical care you have received by your credit card, cash or personal checks during the period of the tax year in which the tax deduction was being considered. During the time of tax return filing, itemized tax deductions such as the expenses related to medical bills, mortgage interest, State and Property taxes and charitable contributions will exceed the increased Standard Deduction that has been permissible by the IRS. The permissible Standard Deduction for the US citizens is $12,000 for those who are filing using Single status and is $24,000 for those citizens who are married and are filing their returns jointly. In case of your tax deductions being itemized, the medical costs incurred should be more than 7.5% of your Adjusted Gross Income (AGI) for the year 2019. Also, this figure was different for the tax year 2018 in which someone who has an AGI of $50,000 would deduct the expenses which are out-of-pocket if they are more than $3750. Conclusion Hence, in case of any life-threatening diseases such as cancer tax deductions and claiming of credits is feasible but you must be well-aware about the tax rules and regulations.

All you need to know about Form 1099-R

by | Jan 6, 2021 | tax filing, tax form, Tax Planning, Tax Preparation, Tax Refund, tax returns, tax savings, taxes

All you need to know about Form 1099-R

Form 1099-R is being used by you for reporting the distribution of benefits associated with retirements like annuities or pension plans. Precisely, the Form 1099-R can be used for reporting the distributions which you might have received from your IRA, annuity, pension, or your retirement account. Form 1099-R can be considered as a record to denote any money paid or given to an American other than his employer.  The payer who pays will fill out the Form 1099-R and will send a copy to the payee and to the IRS as well.

Who can receive a Form 1099-R?

As said earlier, the main purpose of Form 1099-R is to record income. You can receive a Form 1099-R due to some of the below-mentioned reasons.

  1. Freelancers and contractors working independently usually get a Form 1099-MISC from their clients. If you are a freelancer or an independent contractor, this form would reflect the money which the client has paid you. Form 1099-R is for employees but it is not the same as the Form W-2.
  2. Form 1099 has a Social Security Number or Taxpayer Identification Number present on it. This indicates that the IRS will know that you have received money and it will also know if that income has not been reported on your income tax return.
  3. If you are receiving only the Form 1099-R, then it does not specifically mean that you would be owing money on that money reported in Form 1099-R. There might be some deductions which can be helpful in the offset of the income

Variations of Form 1099-R

The variations of Form 1099-R includes the following forms:-

  1. Form CSF 1099R
  2. Form CSA 1099R and
  3. Form RRB-1099-R

Mostly, public and private pension plans which are not a part of the Civil Service System use the Form 1099-R. You must receive a copy of the Form 1099-R or some other variation in case of receipt of a distribution of $10 or more amount from your plans related to retirement.

Pension plans and payment of annuity

Retirement benefits are said to be an extension of the compensation which has been arranged by an employer and employee. On most of the contributions made into the retirement plans, income tax is deferred. In simple words, this means you are not liable to pay any income tax on the funds contributed to the Retirement plans until they are withdrawn by you.

Usually, the pension and annuity distributions are being made to the retired employees, employees who are physically disabled and also for the beneficiaries of any deceased employee.

Loans

Many employers would have the provision of granting loans against pension plans. Usually, these loans are not taken as distributions and are repaid with interest. The issue of Form 1099-R occurs when you have taken a loan and are not able to make the necessary loan repayment on time.

  1. If this situation arises then the amount which is not being re-paid is treated as a distribution and would be mentioned in the Form 1099-R along with the code L i.e. Distribution Code.
  2. These distributions are treated as deemed taxable income and might be subject to penalties related to early distribution.

Rollovers

By a Rollover, retirement funds can be moved or transferred from one individual to another otherwise known as a custodian without any taxes paid on the money that has been transferred.

  1. By the use of Form 1099-R, direct rollovers can be easily identifiable. This is done by the use of codes G or H in box 7 of the Form 1099-R.
  2. Rollovers can be indirect if you are the owner of the account and you take up the responsibility of the amount in the Retirement Account and would transfer the deposited money into another Retirement Account.
  3. When there is a point when there is an amalgamation of rollover and IRS principles, the distribution made is not taxed. But, you should not forget to report the amount on your tax returns. 

Early distributions

Those benefits which are paid to you before you reach the age of 59 and half years are said to be Early Distributions. For avoiding the misuse of the retirement funds, an extra 10% federal tax is imposed on the Early Distributions.  Many states also levy penalties on these early distributions. This additional tax is applicable on the full amount of distribution which is taxable unless exceptions like disability, death, IRS levy, etc.

Conclusion

Hence, the above-mentioned information about Form 1099 would be helpful in understanding the details about this and be easier for use.

Capital Gains tax on selling your property in 2020.

by | Oct 26, 2020 | capital gains, income tax, IRS, tax filing, tax savings, taxes

Capital Gains tax on selling your property in 2020

When you are selling real estate which has been held by you as an investment, the tax implications might be different based on the period for which you have held the property. The tax rules also depend on whether the property is a home or any other category of real estate. If it is a home sale, then it is considered as a particular type of capital gains which has its own set of taxation rules.

 If you are selling property that you have held for less than a year, then it is known as Short-term capital gains. You would have to pay taxes for the Short-term capital gains at the same rate as that of the Income taxes. However, the rates are based upon the income bracket under which you fall.

 When you are selling property which you have held for more than a year, then the profits obtained is known as long-term capital gains. The rates at which the long-term capital gains are taxed are your taxable income, your filing status which can be single, married, and filing taxes separately and married and filing jointly/head of the household.

 Let us have a look at the tax rates for the long-term capital gains of the year 2020.

a.Individual rate or when you are filing as a single

Income

Long-Term Capital Gain Rate

$0 to $40,000

0%

$40,000 to $441,450

15%

$441, 451 or above

20%

 b. Married and filing taxes jointly 

Income

Long-Term Capital Gain Rate

$0 to $78,750

0%

$78,751 to $488,850

15%

$488,851 or above

20%

 c. Married and filing taxes separately 

Income

Long-Term Capital Gain Rate

$0 to $39,375

0%

$39,376 to $244,425

15%

$244,426 or above

20%

 d. Head of the Household 

Income

Long-Term Capital

$0 to $52,750

0%

$52,751 to $461,700

15%

$461,701 or above

20%

Example to illustrate capital gains tax implications on Real estate

In case you are married and filing taxes jointly along with your wife. You and your wife have a taxable income of $200,000 for the year 2020. By this, you would be included in the tax bracket of 15% for the year 2020.

Then you had purchased land in California less than a year ago. However, you had some emergency and needed cash. You had estimated a profit of $10,000 when you had purchased the land. If you sell it now immediately it would be a short-term capital gain and you would have to pay tax $2400 for it. But, if you waited for some more time and sell it then it can be considered as a long-term gain and would be taxed at 15%. So, you would have to pay $900 less or $1500 for the land. Thus, you would have an $8500 gain on the investment.

How much tax can you exclude?

  • If you are selling the house in which you are staying current, then your capital gain would not be taxed up to $250,000 if you are filing your tax returns as a Single.
  • This exemption is based on the IRS Section 121 Exclusion.
  • If you are married and are filing your tax returns jointly, then you can avail of the benefit of a tax exemption of up to $500,000.
  • You would qualify for this exemption only if you are the owner of the home and have used it as your primary residence for a minimum period of 2 years out of the five years before the sale date.
  • There can be some factors which might not let you avail this normal exclusion such as
  1. If you are liable to pay expatriate tax
  2. If the home or the real estate which has been sold by you was not your main residence
  3. If you have not lived there for 2 years out of the 5 years before the sale
  4. If you have not owned the house even for 2 years out of the 5 years before the sale of the house.
  • If you are married and are filing your taxes jointly, then only one out of both of you must satisfy the owning criteria to avail of this tax exclusion.
  • You can still claim the tax exclusions even if any of the criteria are not satisfied if the house was sold or exchanged due to some changes in your employment place, health issues, or any unexpected circumstances.

How to file your Capital Gains Tax?

In 2019, the IRS had said to report your capital gains and losses on Schedule D and report the amount on your Form 1040.  However, now if you are receiving Form 1099-S, Proceeds from Real Estate Transactions, you should report about the sale of the home even though the gain obtained from the sale is excluded under the IRS Section 121 Exclusion.

Conclusion

So, these are the important tax implications on any capital gains you have obtained by selling property. You should also keep in mind that if your investments are being sold they might be subject to an additional 3.8% income tax.

Understanding the tax bracket in 2020.

by | Oct 14, 2020 | tax savings, taxes, Taxpayers

Understanding the tax bracket in 2020.

 

In November 2019, the IRS has announced the annual inflation adjustments for the year 2020. These adjustments would include tax rate schedules and other tax changes. The adjustments of the tax year 2020 would be used while filing the tax returns in 2021. If you are planning for earning more money in 2020 or for changing your circumstances this year, then you should adjust your withholdings or plan for tweaking your payments made for estimated taxes.

 

Tax Brackets and Tax Rates.

The tax items for the year 2020 which would be maximum interest for the taxpayers are:-

  • The rates for Standard deduction for those taxpayers who are married and are filing their taxes jointly are $24,800 for the year 2020. There has been a rise of $400 from the previous year. For those taxpayers who are single and those are married but filing their returns separately, the standard deduction rates have risen to $12,400 this year. For those who are filing their tax returns as ‘Heads of households’, the rate of Standard deduction will be $18,650 which is an increase of up to $300 in 2020. 
  • For the tax year 2020, the personal exemptions allowed are zero which remains the same as that of the year 2019. This elimination was a provision present in the Tax Cuts and Jobs Act. 
  • For the year 2020, for individual taxpayers, the top tax rates are 37% for the individual taxpayers whose income is more than $518,400 ($622,050 for the married couples who are filing returns jointly). The other rates can be listed below as:-
  1. 35% for those incomes which are over $207,350($414,700 for the couples who are filing their returns jointly)
  2. 32% for those incomes which are over $163,300($326,600 for the couples who are filing their tax returns jointly)
  3. 24% for those incomes which are over $85,525($171,050 for those couples who are filing their tax returns jointly)
  4. 22% for those incomes which are over $40,125($80,250 for those couples who are filing their tax returns jointly)
  5. 12% for those incomes which are over $9,875($19,750 for those couples who are filing their tax returns jointly 
  • The limitations on the itemized deductions for the tax year 2020 have been eliminated under the provisions of the Tax Cuts and Jobs Act. 
  • For the tax year 2020, the Alternative Minimum Tax Exemption amount is $72,900 and begins to phase out at $518,400. The exemption amount was $71,700 for the year 2019 which began to phase out at 510,300.   
  • For the tax year 2020, the maximum Earned Income Credit Amount for the taxpayers who have three or more than three qualifying children is $6,660. 
  • The limitation in a month for qualified transportation fringe benefits is $270 for the tax year 2020. 
  • For the tax year 2020, the limitations for the salary reductions of employees to make contributions to health spending arrangements is $2750 which is an increase of $50 from the limit of the last year. 
  • For those participants who have self-only coverage in a Medical Savings Account, for the tax year 2020 there must be an annual deductible that is more than $2,350 which remains the same for the tax year 2019 but must be less than $3,550, which is a rise of $50 from the previous year. In the tax year 2020, for the self-only coverage, the maximum out-of-pocket expense amount is $4,750. For the tax year 2020, the taxpayers who have family coverage, the annual deductible is $4,750 which has increased from $4,650 in 2019; but, this deductible must be less than$7,100, which is an increase of $100 from the limit that has been fixed for the tax year 2019. For family coverage, the limit for the out-of-pocket expenses is $8,650 which has increased by $100 from the tax year 2019. 
  • The Adjusted Gross Income (AGI) amount which is being used by the joint filers for determination in the reduction of the Lifetime Learning credit is $118,000for the year 2020. 
  • For the tax year 2020, the annual exclusion for gifts as determined by the IRS is $15,000. 
  • The Foreign Earned Income Exclusion is $107,600 for the tax year 2020. 
  • The estates of those decedents who die during the tax year 2020 will have an exclusion amount of $11,580,000 which is greater than the exclusion amount of $11,400,000 for the estates of decedents who died in the tax year 2019. 
  • For the tax year 2020, the maximum credit which is permissible for adoptions is the number of qualified adoption expenses up to $14,300.

 

Conclusion.

So, these are the major tax rules which have been changed in the tax year 2020 which must be understood by the taxpayers.

 

People First Initiative: Everything you should know about this IRS initiative during the COVID-19 outbreak

People First Initiative: Everything you should know about this IRS initiative during the COVID-19 outbreak

by | Mar 30, 2020 | COVID - 19, IRS, Tax Extension, Tax Payers, Tax Refund, tax savings, US Government

People First Initiative: Everything you should know about this IRS initiative during the COVID-19 outbreak

The number of people affected by COVID-19 is going on increasing very rapidly and so are the challenges, issues faced by the common masses. In such a situation, the Internal Revenue Services (IRS) has announced a series of steps and guidelines which would help common people in providing some relief related to tax payment compliance. The IRS is highly concerned about the well-being and the working together of people.

The People First Initiative of the IRS has the main objective of helping those people who are facing economic issues and uncertainty in payment of taxes. This program implements temporary changes to the various IRS activities beginning on 1st April 2020 through 15th July 2020. These changes in the tax processes have been made temporarily by the IRS to help people and business entities during these difficult times.

  • The new changes made by IRS include several issues which are ranging from the postponement of specific payments that are related to the Installment Agreements and Offers in compromise to the limiting of some enforcement activities.
  • While some of the activities have been suspended temporarily other activities would move in the modified manner up to a maximum extent.
  • Moreover, the IRS also would avoid any in-person contacts during this period.

Major areas highlighted under the People First Initiative

The major areas which have been mainly given importance under the People First Initiative are 

A.Installment Agreement and Offers in Compromise payments

The IRS has offered expanded payment relief for the existing Installment Agreements and accepted the applications related to Offers in Compromise (OIC) until 15th July 2020. But, taxpayers must also be aware that any unpaid balances will get interest accrued on it as per the law.

For those installment agreements which already exist, the payments that are due between 1st April 2020 and 15th July 2020 are suspended. The IRS would not charge any default installment payment during this time. Those taxpayers who might find compliance with the Installment payment agreement and also with the Direct Debit Installment Agreement can suspend their payments during this time.

However, if a taxpayer is making the tax payments by mailing it or by visiting the IRS website then it is quite simple to stop the procedure. But, in case of direct debit payment, it might be difficult to suspend the process. Taxpayers will have to log in to the IRS website and change the payment information associated with the Direct Debit option.

B.Offers in compromise (OIC)

The various stages of OICs in which the IRS is helping the common people to resolve their issues are summarized below.

Pending OIC Applications–The IRS will not be closing any pending OIC requests before 15th July 2020 without obtaining consent from the taxpayers. 

OIC Payments–Taxpayers will have the option by which they can suspend all the payments until 15th July 2020 on those OICs which have been accepted.

Delinquent return filings–Any delinquent return filings are pending for 2018 then the taxpayers must complete them by 15th July 2020.

New OIC Applications–Those taxpayers who have liabilities more than their net worth then the OIC process can be designed by using “Fresh Start” to resolve the issues of outstanding liabilities. 

C.Compliance Actions

It has not been made clear from when the IRS would start the operations listed below.  However, the IRS will not pursue any compliance actions unless those actions are necessary for the protection of the Government’s interest.

  • New automatic system liens and levies would be suspended during this duration.
  • Liens and levies which have been initiated by field revenue officers would be suspended during his time.  However, the field revenue officers will keep on continuing high-income non-filers and would perform other such types of similar activities.
  • For seriously delinquent taxpayers, IRS would suspend new certifications to the Department of State during this period. This certification will prevent the taxpayers from receipt or renewal of passports.
  • If there are new delinquent accounts, then they will not be forwarded by the IRS to private collection agencies for performing the work during this period.
  • New audits will not be carried off by the IRS during this period.
  • The current audits might continue in some capacity but all those that happens in-person meetings are suspended. 

D.Independent office of appeals

The Appeals office will continue their work on their cases. Appeals would not currently hold an in-person conference with the taxpayers. The conferences can be held over the phone through videoconferencing.  Taxpayers can respond to any outstanding information request for all the cases in the Independent office of appeals.

E.Statute of Limitations

The IRS would take necessary steps for the protection of all applicable statutes of limitations. There can be instances where the statute expirations may be jeopardized during this period and taxpayers are encouraged to co-operate in the extension of such statutes.

 

Conclusion

Hence, the People First Initiative is mainly dedicated to helping the common people in having better lives during this period of crisis. The IRS team is committed to helping common people to get through this stressful situation. The IRS would keep on reviewing the “People First Initiative” and would make necessary changes whenever required. The taxpayers must extend their support and co-operation to the IRS as well to win over this tough situation together.

References 

https://www.irs.gov/newsroom/irs-unveils-new-people-first-initiative-covid-19-effort-temporarily-adjusts-suspends-key-compliance-program

https://www.eisneramper.com/people-first-covid-0320/

https://www.taxwarriors.com/blog/irs-unveils-people-first-initiative

https://rsmus.com/what-we-do/services/tax/federal-tax/tax-controversy/irs-announces-its-people-first-initiative-ir-20-59.html

https://www.foxrothschild.com/publications/irs-people-first-initiative-changes-collections-procedures/

 

Does the new tax deadline by IRS mean a new deadline for your IRA contribution?

Does the new tax deadline by IRS mean a new deadline for your IRA contribution?

by | Mar 23, 2020 | federal income tax, global income tax, IRA, IRA Contribution, IRS, Tax Extension, tax filing, Tax Payers, Tax Refund, tax return, tax savings, taxes, US Government

Does the new tax deadline by IRS mean a new deadline

for your IRA contribution?

The IRS Tax Deadline, The federal tax filing deadline in the US has been extended up to 15th July 2020 to combat the effects of economic hazards caused due to the outbreak of COVID-19. This extension would also mean that you can make contributions to the IRA up to 15th July 2020.

IRA and how it works?

In the US, IRA or Individual Retirement Account helps you in saving money for retirement in a tax-advantaged way. The money which you would invest in this account can grow in a tax-deferred manner until you are ready to retire. Usually, traditional IRAs and Roth IRAs are opened by individuals whereas SEP IRAs and SIMPLE IRAs are meant for small business owners and self-employed individuals. 

All the IRAs offer tax benefits which can be considered as a reward for saving. With the help of an IRA, you can even invest in stocks, bonds, and other assets. By making contributions to a traditional IRA, your tax bill would be reduced for the year in which you are contributing and you would not have owed income tax on the money until you withdraw it on your retirement. However, in a Roth IRA investments can grow in a tax-free manner but the contributions are not eligible for tax deductions. The withdrawal of the money can be done on retirement in a tax-free manner by investing in a Roth IRA as well.

The major benefits of an IRA can be listed below.

  1. Saving tool for retirement
  2. Cutting of tax bill
  3. The wider option of investments available
  4. Savior in any unexpected situation

By the IRA withdrawal rules, you can withdraw your money anytime from the IRA but by paying a penalty of 10% and a tax bill if your money has been withdrawn before the age of 59-1/2 years unless there is an exception.

Extension in IRA

contribution deadline

In case you have not been able to save much for your retirement in the last year, you can do that now as the IRA contribution deadline has also been extended. The IRS has extended this for 90 days without charging any penalties or interest for this.

You can contribute a maximum of $6000 towards the IRA. If you are above the age of 50 years then you can contribute an additional $1000 as a catch-up contribution. For making further contributions to your IRA you must contact the brokerage where your IRA has been held so that any additional funds that are added by you into the IRA are correctly filed.

Extension in the deadline for tax

owed on the income from IRA 

If you have taken an early distribution from your IRA or any other work-based retirement plan then you will owe an additional tax. This will be a 10% additional tax on the amount that can be included in 

gross income obtained from the early distribution. The deadline for reporting and payment of this additional tax has also got an extension up to 15th July 2020.

The major cause behind this is that this additional 10% tax is calculated and even paid at the same time as the income tax owed on the gross income. In case you are filing before 15th July 2020, then this extra 10% tax would be calculated at the time of filing itself.

Remove excessive

deferrals

In case, excessive deferrals have been made by you to your work-based retirement plans then those deferrals must be removed from the plan. This removal must be done by 15th April 2020 as those distributions need to be removed from the income and there has been no extension in this deadline. 

Conclusion

 Hence, the current situation is quite stressful for the people as the COVID-19 has led to several lay-offs and business closures in sectors that are customer-facing in nature. If you have extra cash now, you must contribute it towards your IRA and take one step ahead for your secure retired life.

References

  1. https://blog.turbotax.intuit.com/tax-news/what-the-coronavirus-relief-and-new-tax-deadline-mean-for-your-ira-contributions-46578/
  2. https://www.nerdwallet.com/article/investing/learn-about-ira-accounts
  3. https://www.cnbc.com/2020/03/24/you-have-until-july-15-to-save-in-your-ira-and-health-savings-accounts.html
  4. https://www.businessinsider.com/personal-finance/irs-extends-ira-retirement-health-savings-contributions-new-tax-deadline?IR=T
  5. https://www.forbes.com/sites/ashleaebeling/2020/03/24/ira–hsa-contribution-deadlines-extended-due-to-coronavirus/#2688e4c93808