Tax

Medical expenses can trim taxes. Keeping good records and knowing what to deduct make all the difference. Here are four tips to help taxpayers know what qualifies as medical and dental expenses:

1. Itemize. Taxpayers can only claim medical expenses that they paid for in 2016 if they itemize deductions on a federal tax return.

2. Qualifying Expenses. Taxpayers can include most medical and dental costs that they paid for themselves, their spouses and their dependents including:

• The costs of diagnosing, treating, easing or preventing disease.
• The costs paid for prescription drugs and insulin.
• The costs paid for insurance premiums for policies that cover medical care.
• Some long-term care insurance costs.

Exceptions and special rules apply. Costs reimbursed by insurance or other sources normally do not qualify for a deduction. More examples of what costs taxpayers can and can’t deduct are in IRS Publication 502, Medical and Dental Expenses.

3. Travel Costs Count. It is possible to deduct travel costs paid for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. For use of a car, deduct either the actual costs or the standard mileage rate for medical travel. The rate is 19 cents per mile for 2016.

4. No Double Benefit. Don’t claim a tax deduction for medical expenses paid with funds from your Health Savings Accounts (HSAs) or Flexible Spending Arrangements (FSAs). Amounts paid with funds from these plans are usually tax-free.

If you’re wondering whether your medical and dental expenses are deductible on your tax return, don’t hesitate to contact the office.

• By Leon Clinton
• April 16, 2017

If you are a self-employed, you normally carry on a trade or business. Sole proprietors and independent contractors are two types of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. If you’re self-employed, here are six important tax tips you should know about:

• Self-Employment Income. Self-employment can include income you received for part-time work. This is in addition to income from your regular job.
• Schedule C or C-EZ. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet certain other conditions. Please call if you are not sure whether you can use this form.
• Self-Employment Tax. If you made a profit, you may have to pay self-employment tax as well as income tax. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. If you owe this tax, attach the schedule to your federal tax return.
• Estimated Tax. You may need to make estimated tax payments. These payments are typically made on income that is not subject to withholding. You usually pay estimated taxes in four annual installments. If you do not pay enough tax throughout the year, you may owe a penalty. See, Estimated Tax Payments – Q & A, above, for more information about estimated tax payments.
• Allowable Deductions. You can deduct expenses that you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
• When to Deduct. In most cases, you can deduct expenses in the same year you paid, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.

Questions about self-employment taxes? Help is just a phone call away.

• By Leon Clinton
• April 13, 2017

Estimated tax is the method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, and rent, as well as gains from the sale of assets, prizes and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

How do I know if I need to file quarterly individual estimated tax payments?

If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year. The first estimated payment for 2017 is due April 18, 2017.

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

If you had a tax liability for the prior year, you may have to pay estimated tax for the current year; however, if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.

Note: There are special rules for farmers, fishermen, certain household employers, and certain higher taxpayers.

Who Does Not Have To Pay Estimated Tax

You do not have to pay estimated tax for the current year if you meet all three of the following conditions:

• You had no tax liability for the prior year
• You were a U.S. citizen or resident for the whole year
• Your prior tax year covered a 12-month period

If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings. To do this, file a new Form W-4 with your employer. There is a special line on Form W-4 for you to enter the additional amount you want your employer to withhold.

You had no tax liability for the prior year if your total tax was zero or you did not have to file an income tax return.

How Do I Figure Estimated Tax?

To figure your estimated tax, you must figure out your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. If you estimated your earnings too high, simply complete another Form 1040-ES, Estimated Tax for Individuals worksheet to refigure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter.

Try to estimate your income as accurately as you can to avoid penalties due to underpayment. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90 percent of the tax for the current year, or 100 percent of the tax shown on the return for the prior year, whichever is smaller.

Tip: When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for the prior year as a starting point. Use your prior year’s federal tax return as a guide and use the worksheet in Form 1040-ES to figure your estimated tax.

You must make adjustments both for changes in your own situation and for recent changes in the tax law.

When Do I Pay Estimated Taxes?

For estimated tax purposes, the year is divided into four payment periods and each period has a specific payment due date. For the 2017 tax year, these dates are April 18, June 15, September 15, and January 16, 2018. You do not have to pay estimated taxes in January if you file your 2017 tax return by January 31, 2018, and pay the entire balance due with your return.

Note: If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return.

The easiest way for individuals as well as businesses to pay their estimated federal taxes is to use the Electronic Federal Tax Payment System (EFTPS). Make ALL of your federal tax payments including federal tax deposits (FTDs), installment agreement and estimated tax payments using EFTPS. If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc. you can, as long as you have paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments, so you know how much and when you made your estimated tax payments.

Please call if you are not sure whether you need to make an estimated tax payment or need assistance setting up EFTPS.

• By Leon Clinton
• April 12, 2017