Okay, you survived the fun filled holidays and all the decorations are back in storage. Not so fast. The old year 2011 is not over until you file your taxes, not counting any extensions. How lucky you are to get one extra day because April 15th falls on a Sunday and the District of Columbia has a holiday on Monday, so that individual taxes are not due until Tuesday, April 17, 2012. What a country!
I would like to take this opportunity to discuss the tax impact upon medical insurance and how it can possibly help you save money. You may recall that long term care insurance provides medical services for home care, a community or adult day care, assisted living facility or nursing facility when the patient has a cognitive impairment or can no longer perform two of six activities of daily living (ADL’s), namely eating, bathing, dressing, toileting, continence and transferring.
The premiums paid for private insurance policies are deductable for both Federal and New York State taxes. Please note that the federal deduction is subject to the 7.5% threshold limitation for medical paid premium expenses as an itemized deduction according to the following per person age based table: Age 40 and under, $340; Over 40 but not over 50, $640; Over 50 but not over 60, $1,270; Over 60 but not over 70, $3,390; Over 70, $4,240.
For a married couple filing jointly, where one spouse is over 60 and the other is over 70, the maximum deduction for long term care would be $7,630 in addition to other qualified medical expenses that may be claimed. Please note that the maximum amounts assume actual premium payments at least equal to or greater that the amounts allowed. In the event actual premiums are less than the amounts in the table, the actual premium paid is the authorized limit.
New York State does not use itemized deductions but does allow a 20% credit from the total premium paid to be documented annually on Form IT-249, and attached to the regular state return, even if no taxes are due. The credit is cumulative and may be used to offset future tax liabilities that could occur so it is important to file the form even when there is no immediate tax liability.
The 2011 tax return does not include major changes in tax rates as the six current rates (10%, 15%, 25%, 28%, 33%, 35%) will continue without change for both 2011 and 2012. However, there are adjustments due to indexing, the elimination of some prior credits/deductions and some total new items as well.
Some of the changes include mid-year business and medical mileage adjustments, increases in standard deductions, lower social security contribution rate only for the employee, extension of capital gains qualified dividends, reinstatement of estate tax, revised home energy credit, IRA and Roth contribution phase out limits, the elimination of non-prescription drugs from HSA payments, and other technical changes too numerous to discuss here.
What’s gone and easily forgotten? Completely out is the two year limit for claiming equitable innocent spouse relief so that there is no longer a time limit for making such a claim, the credit for hybird vehicles (except those with fuel cells), the Make Work Pay Credit, and advanced payments for the earned income credit.
There are new forms for reporting the sales of capital assets and a revised Schedule D and Broker reporting on Form 1099-B. This will require more detailed reporting of all stock transactions so that IRS will be better able to match each tax return with broker statements prior to any other adjustments. Also new is another form to provide more information on foreign financial accounts as well as revisions to the schedule B information regarding foreign banks.
The IRS has instituted a new program to increase the professionalism of some 600,000 tax preparers nationally by requiring annual mandatory continuing education credits as well as successful completion of a competency test. CPA’s, Attorneys and Enrolled Agents are excluded since these professions already have state education requirements. Once tax preparers register with IRS and pay a fee, they can be designed as Registered Tax Return Preparers, or RTRP’s. What a fun tax season this will be!
For tax information regarding specific individual situations, please consult your tax advisor. Questions or comments may be directed to Peter Alessandro at 518-250-0913 or e-mail at [email protected].
