Tax Tips Blog

Gary asks:Housing Assistance Tax Act of 2008 lets Filers claim $500 for Individual Filers and $1000 for Joint Filers for those that don’t itemize their deductions. You simply add the $500 or $1000 to the Standard Deduction Amount.  My Question is does this also apply to those that are Married filing Seperately?

Sandra writes: Dear Gina,

A friend of mine saves EVERY gasoline receipt after she fills up her (personal use) car. She claims she can deduct ~ ~ 38 cents per gallon of gas because the Federal and State Gasoline taxes..are tax deductible.

Is she correct?

My reply:Sandra,

Thanks so much for visiting.

Someone actually asked me a similar question almost a year ago. My response to that question is here: http://glgcpa.com/blog/2008/01/11/sales-tax-or-state-tax-deduction/

In short, Federal excise taxes are NOT deductible. In addition, environmental fees are NOT deductible. Most gas stations (I actually don’t know of one that doesn’t do it this way), include their environmental fees as part of the tax we pay at the pump. So, if for some reason your friend happens to know the exact amount of all the fees and taxes which are not deductible for each purchase of gasoline that she makes, then she could compute the potentially deductible portion, but that would be a lot of work. In addition to keeping all of her receipts she would have to have some sort of a spreadsheet to compute the amount of deductible taxes at each location. In case of audit, she would also need “proof” of the amounts she used for the environmental fees and any other fees that a particular station may have included as “gas tax”.

So in conclusion, if she’s really able to separate out all the fees and taxes, then yes the state, county and local sales tax portion is deductible.

Best wishes,
Gina

Adrian writes: Hello Gina.
I am glad I have found your website and read great advices of yours.  I have an humble question. I am an United States citizen and my mother is from Poland. She came here on non-immigrant visa and I am going to apply for her green card right now. A month ago she had been diagnosed with retinal detachment in her eye. She didn’t have health insurance so I am going to pay for her surgery (Roughly $10,000). Do you think that I could deduct at least some of that amount from my income tax?
I know you’re busy but right now I am in a dire straits and financially I am completely broke. I would appreciate any advice from you.
Thank you very much and have a wonderful day.

Sincerely,

Adrian

My reply:

Hello Adrian!  I am sorry to hear of your mother’s misfortune regarding her health.  If your mother is also your dependent, then yes, you can claim her medical expenses as an itemized deduction on your Schedule A.

You may wish to read more at the IRS website:  http://www.irs.gov/publications/p502/index.html

Best wishes,
Gina

Joe asks:

Can multiple purchases be grouped together for itemized deduction of sales tax for major purchases (multiple small Home Depot and Lowes purchases for landscaping or remodel)?

My reply:

Hello Joe!

You have the option of taking either your State Income Taxes or Sales Taxes as an itemized deduction. If you choose to take the Sales Tax deduction then you have the option of adding up all the sales tax you paid for the year (this would require you keeping every single receipt for the year) and deducting that amount OR using the IRS tax tables plus “big-ticket” items.

Big Ticket items are just that - a car, a boat, etc. There is no specific deduction for landscaping or remodeling. It would have to be considered a substantial addition or major renovation.

A substantial addition to your home or major renovation is considered a big ticket item IF the tax rate was the same as the general sales tax rate AND any of the following applies:
1. Your state or locality charges a general sales tax on the sale of a home, substantial addition to a home or major renovation of a home.

2. You purchased the materials to build the substantial addition or major renovation yourself and paid the general sales tax directly.

3. Under your state law your contractor is considered your agent in the substantial addition or major renovation of your home.

4. None of these items were used in your trade or business.

Assuming you qualify, then yes, you may add up all the sales tax associated with the substantial addition or major renovation.

Best wishes,

Gina

Brett asks:I bought a new car last year and I think I’ll get a larger deduction if I deduct my sales tax instead of my state income tax. When I calculate my sales tax deduction do I get to include all the sales tax I paid on my gasoline?

My reply: Hello Brett! Interesting question.

The tax on gasoline isn’t just one tax - it could be several different kinds of tax. First you have your Federal excise tax, then your State excise tax, then your general sales tax, your county and local sales tax, environmental fees and wholesale taxes.

State excise taxes are anywhere from about 8 cents a gallon to 33 cents a gallon. Federal excise taxes are about 18 - 20 cents a gallon. The actual sales tax on gas is anywhere from about 3% to maybe as high as 10% of the total retail price of the gas. Since this is rarely, if ever broken out, I would have to believe it would be extremely hard to go through all your receipts for the year and determine, based on where you purchased the gas, exactly how much of the taxes that you paid were actually sales taxes.

However, if you do decide to do that, the general sales tax on gasoline is potential deductible on your income taxes. It’s only deductible if you itemize your deductions, choose the option of taking your sales tax instead of your state income tax and use actual expense method of computing the sales tax and you qualify for the itemized deduction and your itemized deductions are not phased out and you’re not subject to AMT, etc.

Good question though.

Best wishes,

Gina

Bob writes: I was under the impression that disability premiums were tax deductible. But looking at irs.gov, looks like I’m wrong. Personal DI premiums are clearly listed in the can not deduct category. What if you are self-employed? Deductible then or no? What if the premiums are being paid with after-tax dollars?

My reply: Generally, disability insurance premiums are not deductible.

If you pay disability premiums personally they are not deductible, but the income is not taxable. If your employer pays the disability premiums for you, the income is taxable. If your employer pays the premiums for you with your after tax dollars then the income is not taxable.

Having said the above, payments to certain mandatory state disability programs, such as California, New Jersey and New York, are deductible on schedule A as state and local taxes.

Best wishes,

Gina

Cindy asks:My two beloved cats have had a lot of medical bills this year……close to $6000. Sometimes I pay with a check to the vet and the check is written payable to “Dr. Lastname”. Other times I pay with a credit card and it shows up “Medical Center”. Can these fees be deducted as medical expenses. Thanks alot, Cindy

My reply:Hello Cindy. I’m reading into your message that you realize these bills are not medical expenses that you incurred for yourself, spouse and/or dependents; thus they would not be deductible on Schedule A as an itemized deduction.

Just because you cannot tell by simply reading who the payment was made to does not make it deductible.

If however you normally file a Schedule F and have appropriately reported these cat as assets of your profit earning farm business, then they would be deductible; however, based on your email it appears these cats are your personal pets and not assets of a profit earning farm business.

I wrote an article last Feb. regarding Deductible Medical Expenses, which you may be interested in reading. Best wishes, Gina www.GLGcpa.com

Estelle asks:I have a parent in assisted living. I have asked two accountants the answer to this question and both gave me different answers. One accountant said to deduct the whole amount of rent as a medical deduction, because she is there for health and medical reasons. The other accountant said to deduct the difference between the rent (with services included) and rent for independent living (which the same facility used to have also) as a medical deduction. I have searched IRS info. and still do not a definitive answer. Thanks for any help with this one.

My reply: Hello Estelle! Thank you for visiting.

The easiest and quickest approach would be to contact the facility and ask them how much of the total payments, in your parent’s case, are for deductible medical expenses. This is a common enough question that many provide a letter to their residents each year telling them how much of their payments are deductible.

If that fails, then discuss exactly what medical care your patient is receiving with her doctor. After obtaining the information from your parent’s doctor provide this information to your qualified tax preparer and/or carefully review “Qualified long-term care expenses” in IRS Pub 502.

Best wishes, Gina

Chris asks:We are in the 15% bracket and own a co-op for which we pay $1,400 a month maintenance or $16,000 a year, of which 45% is tax deductible. My wife does our taxes and she informed me that last year we could not use it because we did not have enough deductions to fill in the long form. Is there any way we could use it?

My reply:

Taxpayers who own their homes, and itemize their deductions, are generally allowed to deduct their mortgage interest and real estate taxes that they pay for themselves. Most taxpayers are not allowed to deduct expenditures that others pay for them.

However, Internal Revenue Code section 216, allows shareholders to deduct a portion of their maintenance charges from their taxable income. The shareholders in a co-op are usually tenants in the co-op; thus, their maintenance charges is esentially rent paid to the co-op.

Maintenance charges usually include all costs associated with running the building, such as real estate taxes, mortgage interest, utilities, insurance, etc. Some of these expenses are not tax deductible. You are informed of the percentage of the maintenance charges that are tax deductible each year.

In order for you to claim this deduction you would have to itemize your deductions on your tax return. If you were unable to “use the long form”, then you did not report more itemized deductions than your standard deduction.

The first thing you should do is see if you (or your wife) overlooked other expenditures that are tax deductible such as state income (or sales tax) and personal property taxes, the interest on the debt you incurred to purchase your co-op shares, equity loan interest taken out on your co-op shares and charitable contributions.

Harder to qualify for, but also includible, are allowable medical expenses, casualty losses, and various miscellaneous deductions. If you think something may be deductible, but you are not sure you should ask a qualified tax professional.

The important thing to keep in mind is that your tax deduction is only a portion of every dollar that you spend. Because of this it is never wise to based your spending, business or investment decisions sole on tax consequences.

The value of every tax deduction depends largely your income — the more income you have, the more valuable the tax deduction.

Best wishes, Gina

It appears that there’s a local tax preparer who is/was advising taxpayers that they should have cosmetic surgery in order to increase their medical expenses to reduce their taxes. Not only that, this tax preparer is/was also allowing taxpayers to deduct the cost of medical and dental insurance paid with pre-tax income. Neither of these are legitimate deductions.

Assuming you can benefit from deducting your medical expenses (or those of your spouse or dependents), the following is a general, but not inclusive, list of what is allowed, if paid to a doctor, surgeon, dentist, chiropractor, psychiatrist or psychologist. Please consult a qualified tax professional if you have incurred items that are not on this list that you believe may be deductible:

1. Medical, dental, accident and health and a limited amount of qualified long-term care insurance
2. Medical and dental expenses paid to diagnosis a condition
3. Medical and dental expenses to treat, prevent, or cure a condition – this includes hospital services, qualified long-term care services, nursing services, laboratory fees, acupuncture treatments and inpatient treatment at a center for alcohol or drug addiction
4. Prescription drugs, prescription eyeglasses or prescription contact lenses
5. Insulin
6. The cost of a program to help you stop smoking
7. The cost of a weight-loss program IF you are participating in the program because your physician diagnosed you with a specific disease such as obesity or diabetes AND told you to participate in the weight-loss program in order to help treat this disease
8. False teeth
9. laser eye surgery
10. hearing aids
11. crutches, wheelchairs, and guide dogs for the blind or deaf
12. Transportation cost incurred to obtain deductible medical care

The following are some expenses, which are NOT deductible medical expenses:

1. most cosmetic surgery
2. Insurance premiums paid by your employer-sponsored health insurance plan (cafeteria plan) unless they are included in your gross wages
3. diet food
4. over–the–counter medicines and vitamins
5. any medical or dental expense for which you were reimbursed for or that was paid directly to the doctor or hospitalhealth club dues
6. non-proscription nicotine gum and non-proscription nicotine patches

Please keep in mind that in order to benefit from payment of medical and dental expenses you must itemize your deductions. In addition, the amount of your medical and dental expenses must exceed 7.5% of your adjusted gross income (AGI) before it is potentially deductible. And, your total itemized deductions must exceed your standard deduction for you to obtain any benefit.