April 1, 2012

Tax Saving tips: Only a Few Weeks to Go

This is a guest post from Ross Blair, Medicare expert and CEO of PlanPrescriber.com. He passes on his suggestions for often overlooked tax tips for retirees and caregivers :

 Whether you are visiting the doctor more, starting a new businesses, caring for an elderly relative, or making home improvements to accommodate new medical devices, today’s retirees are in a better position than ever to benefit from medical and health insurance-related tax deductions. Below are some of my favorites. Talk with your accountant to see which deductions apply to you.

Deducting health insurance and medical expenses – Let’s start with the basics. If you itemize on your federal tax return you may be able to deduct medical expenses from your taxable income. Qualifying medical expenses may include monthly premiums you pay for health insurance, copayments, deductibles, dental expenses, and costs for some services not covered by your insurance plan. You can even deduct mileage accrued while driving to and from medical appointments.

If you or your spouse are already receiving Social Security or are on Medicare, premiums taken from your Social Security checks to pay for Medicare Part B qualify as deductible too, as do premiums you paid for Medicare Part D (Prescription Drug) coverage or a Medicare Supplemental plan. Here’s the catch: you can only deduct the portion of your medical expenses that exceeds 7.5% of your adjusted gross income. That may seem like quite a hurdle but if you were seriously ill or hospitalized last year, you may qualify.

Deducting health insurance premiums as a business expense - If you had self-employment income in 2011, you may be able to deduct health insurance premiums you paid for yourself and your dependents as an ‘above the line’ business expense (that is, without itemizing). Be aware, however, that you may not deduct premiums paid for any month in which you were eligible to participate in an employer-sponsored health insurance plan, and that the amount you deduct cannot be greater than your net self-employment income for the year. Also keep in mind that you can’t include what you paid toward your monthly premiums as an ‘above the line’ expense and also itemize it. Talk to a tax professional to learn more about the different types of self-employment status and the tax implications of each.

 Deducting expenses for the care for an aging parent – Lots of today’s retirees are taking care of elderly parents. If that’s you, you may deserve some relief. If your parent earned less than $3,700 in 2011 (excluding Social Security) and you provided more than half of his or her financial support, you may be able to claim your parent as a dependent. This earns you an additional dependent exemption, even if your parent doesn’t live with you. And if you’ve paid for the medical or nursing care of a dependent parent, you may also be able to itemize your costs as qualified medical expenses.

Deducting medical home improvements – If you or a dependent are suffering from a chronic medical condition that have required changes to your home, you may have an easier time meeting the 7.5% adjust gross income threshold to deduct itemized medical expenses. In addition to your out-of-pocket costs for medical, dental or vision care, you may also be able to include capital expenses for the installation of home medical equipment or improvement of your property for wheel-chair access.

Getting the most from your Health Savings Account (HSA) - If you have an HSA, be sure to deduct your contributions up to federally prescribed limits. Contributions to your HSA designated for 2011 and made before April 17, 2012 can be counted toward your 2011 federal taxes. HSA contributions for the 2011 tax year are capped at $3,050 for individuals and $6,150 for families. If you’re over age 55, you may qualify to make an additional $1,000 contribution for the year.

Thanks to Ross Blair President and CEO of Plan Prescriber, Inc. (http://www.planprescriber.com/ ), a leading provider of comparison tools and educational materials for Medicare-related insurance products, for his toughts. Disclaimer: I have received no compensation for this article or any links it contains.

4 comments:

  1. Thanks so much! 2012 is my first year in retirement so this information will help me get off to a good start in record keeping and planning for when taxes are due next year!

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    1. Welcome to the wonderful world of retirement, Kaye. Record keeping is 90% of the battle. I'm glad this info gave you some pointers.

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  2. Bob, I had my taxes done at the senior center last week. I am single and still working and filled the short form. While I was there, I saw may seniors with stacks of papers getting thier taxes done. I was asking my why so many papers for these people. Now this article explains that. Thank you.

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    1. Our tax codes are so confusing and complicated that you may be able to get by with a 1040 short form while the person next to you needs a stack of official forms and documents. Thank goodness for things like Turbo Tax and professional services to help us make sense of something that makes little sense!

      Aren't you glad you are all done for another year.

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