dependents

Tax

The Facts: Medical & Dental Expenses and Your Taxes

If you, your spouse or dependents had significant medical or dental costs in 2012, you may be able to deduct those expenses when you file your tax return. Here are eight things you should know about medical and dental expenses and other benefits.

1. You must itemize. You deduct qualifying medical and dental expenses if you itemize on Schedule A on Form 1040.

2. Deduction is limited. You can deduct total medical care expenses that exceed 7.5 percent of your adjusted gross income for the year.

3. Expenses must have been paid in 2012. You can include medical and dental expenses you paid during the year, regardless of when the services were provided. Be sure to save your receipts and keep good records to substantiate your expenses.

4. You can’t deduct reimbursed expenses. Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement, or those with a qualifying relative who is not your child.

6. Types of expenses that qualify. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

7. Transportation costs may qualify. You may deduct transportation costs primarily for and essential to medical care that qualifies as a medical expense, including fares for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 23 cents per mile for 2012.(This rate increases to 24 cents in 2013.)

8. Tax-favored saving for medical expenses. Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.

Please give us a call if you need help figuring out what qualifies as a medical expense.

Tax

Check Your Withholdings

With less than two months remaining in the calendar year, it’s a great time to double check your federal withholding.

Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. But each year millions of American workers have far more taxes withheld from their pay than is required. In fact, the average refund for 2011 was just under $3,000. Although it’s a slight decrease from 2010, ($2,973 vs. $3,003), taxpayers might want to consider adjusting their tax withholding to bring the taxes they must pay closer to what they actually owe–and put more money in their pocket right now.

On the flip side, is that some workers and retirees still need to take steps to make sure enough tax is being taken out of their checks to avoid penalties they might have to pay. Certain folks should pay particular attention to their withholding. These include:

  • Married couples with two incomes
  • Individuals with multiple jobs
  • Dependents
  • Some Social Security recipients who work
  • Workers who do not have valid Social Security numbers
  • Retirees who receive pension payments

Whether you’re starting a new job, retiring, or self-employed, you can use the following tips to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.

Employees

    • New Job. When you start a new job your employer will ask you to complete Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.

 

  • Life Event. You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.

You typically can submit a new Form W-4 anytime that you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single; you must give your employer a new Form W-4 within 10 days of that life event.

Self-Employed

  • Form 1040-ES. If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.

If you’re not sure how much you need to withhold from your paycheck, just give us a call and we’ll figure it out with you.

Asset Protection Estate Financial Planning Investments

Should You Invest in Life Insurance?

The purpose of life insurance is to provide a source of income, in case of death, for your children, dependents, or other beneficiaries. Life insurance can also serve certain estate planning purposes, which we won’t go into here.

Buying life insurance is contingent upon whether anyone is depending on your income after your death. If you have a spouse, child, parent, or some other individual who depends on your income, then you probably need life insurance.

Because life insurance protects your family in the event of a death, it is important to determine the correct amount. Most people do not have the right amount of insurance.

There are two basic types of life insurance: term and permanent. Term insurance is insurance that covers a specified period. If you die within this time frame, your beneficiary receives the insurance benefit. Term policy premiums usually increase with age.

Permanent insurance such as universal life, variable life, and whole life, contains a cash value account or an investment element to the insurance.

Rules of Thumb

The younger your children, the more insurance you need. If both spouses earn income, then both spouses should be insured, with insurance amounts proportionate to salary amounts.

Tip: If the family cannot afford to insure both wage earners, the primary wage earner should be insured first, and the secondary wage earner should be insured later on. A less expensive term policy might be used to fill an insurance gap.

If one spouse does not work outside the home, insurance should be purchased to cover the absence of the services being provided by that spouse (child care, housekeeping, bookkeeping, etc.). However, if funds are limited, insurance on the non-wage earner should be secondary to insurance for the wage earner.

If there are no dependents and your spouse could live comfortably without your income, then you will still need life insurance, but you will need less than someone who has dependents.

Tip: At a minimum, you will want to provide for burial expenses and paying off your debts.

If your spouse would undergo financial hardship without your income, or if you do not have adequate savings, you may need to purchase more insurance. The amount of insurance you need depends on your salary level and that of your spouse, the amount of savings you have, and the amount of debt you both have.

If you need help figuring out the correct amount of life insurance you need, then give us a call. We’re happy to help.

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