Watch your wallet: the median cost in 2018 for an assisted living facility was $48,000 and over $100,000 for nursing home care.
If you could deduct these expenses, you’d substantially reduce your income tax liability—possibly down to $0—and dramatically reduce your financial burden from these costs. As you might expect, the rules are complicated as to when you can deduct these expenses. But I’m going to give you some tips to help you understand the rules.
Medical Expenses in General
You can deduct expenses paid for the medical care of yourself, your spouse, and your dependents, but only to the extent the total expenses exceed 10 percent of your adjusted gross income.
Medical care includes qualified long-term care services. Assisted living and nursing home expenses can be qualified long-term care expenses, depending on the health status of the person living in the facility.
If you operate a business, with the right circumstances, through your business we can help you turn the medical expenses into deductions.
Qualified Long-Term Care Services
The term “qualified long-term care services” means necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services, which:
The IRS recently issued new cryptocurrency guidance and is hot on your trail if you bought and sold cryptocurrency and didn’t report it on your tax return.
Here are the tax basics. You’ll treat cryptocurrency as property for tax purposes.
Cryptocurrency is a capital asset (provided you aren’t a trader). Therefore,
In the cryptocurrency world, a fork occurs when the digital register that logs transactions of a particular cryptocurrency diverges into a new digital register. There are two types of forks:
The IRS ruled that:
rIf you are self-employed, you have much to think about as you enter your senior years, and that includes retirement savings and Medicare. Here a few tips that will help and questions you should think about.
There are many more factors to consider. Spencer Accounting Group, consults with you to understand your goals and puts a plan in place.
The Hope credit which is now the American Opportunity credit and the Lifetime Learning credit are tax credits for taxpayers who pay certain higher education costs. These credits depend on the amount of qualified tuition and related expenses you paid in a given year, as well as the level of your modified adjusted gross income (MAGI). The credits are available for qualified education expenses that you, your spouse, or your dependent incur at an eligible educational institution. The IRS has provided specific guidance regarding the definitions of eligible educational institution and qualified expenses.
The American Opportunity credit is worth up to $2,500 per student for qualified tuition and related expenses incurred during the first four years of post-secondary education. The credit does not apply to graduate or professional-level courses. To qualify, you must be enrolled in a degree or certificate program at least half-time, and you must not have a felony drug conviction. The credit is available for each eligible student in the household. The credit is calculated as 100 percent of the first $2,000 of qualified tuition and related expenses, plus 25 percent of the next $2,000 of such expenses. A portion of the credit may be refundable, which means you may be able to have a portion of the credit refunded to you if total tax credits exceed total tax liability.
The Lifetime Learning credit is worth up to $2,000 per year for qualified tuition and related expenses incurred for course work at eligible educational institutions. You need only be enrolled in one or more courses to qualify. The credit is also available for graduate and professional-level courses. Furthermore, courses related to sports, games, or hobbies may qualify if they are part of a course of instruction to acquire or improve job skills. The Lifetime Learning credit is equal to 20 percent of the first $10,000 of your qualified tuition and related expenses, up to a maximum credit of $2,000 per tax return.
The maximum American Opportunity tax credit is available to single filers with a MAGI below $80,000 and to joint filers with a MAGI below $160,000. A partial credit is available to single filers with a MAGI between $80,000 and $90,000 and to joint filers with a MAGI between $160,000 and $180,000. For 2019, the maximum Lifetime Learning tax credit is available to single filers with a MAGI below $58,000 and to joint filers with a MAGI below $116,000. A partial credit is available to single filers with a MAGI between $58,000 and $68,000 and to joint filers with a MAGI between $116,000 and $136,000. These credits are not available to you if your filing status is married filing separately.
For additional information, see IRS Publication 970 or consult a tax professional.
At Spencer Accounting Group, we focus on tax planning for small business owners more than anything else. You could say we are obsessed with finding ways for our clients to pay less tax.
We are fixated on relieving business owner's frustration over missed opportunities regarding leaving tax deductions on the table. If you are missing opportunities, you need to stop what you are doing and make plans. Schedule a meeting.
You may be. There are two education tax credits — the American Opportunity credit, worth up to $2,500, and the Lifetime Learning credit, worth up to $2,000. To claim either credit in a given year, you must list your child as a dependent on your tax return. In addition, you must meet income limits.
For 2020, the maximum American Opportunity credit is available to single filers with a modified adjusted gross income (MAGI) below $80,000 and joint filers with a MAGI below $160,000. A partial credit is available to single filers with a MAGI between $80,000 and $90,000 and joint filers with a MAGI between $160,000 and $180,000. For 2020, the maximum Lifetime Learning credit is available to single filers with a MAGI below $59,000 and joint filers with a MAGI below $118,000. A partial credit is available to single filers with a MAGI between $59,000 and $69,000 and joint filers with a MAGI between $118,000 and $138,000.
Now, what credit might you be eligible for? The American Opportunity credit applies to the first four years of undergraduate education and is worth a maximum of $2,500. It is calculated as 100% of the first $2,000 of your child's annual tuition and related expenses, plus 25% of the next $2,000 of such expenses. To qualify for the credit, your child must be attending college on at least a half-time basis.
The Lifetime Learning credit is worth a maximum of $2,000 per year. It is calculated as 20% of the first $10,000 of your child's annual tuition and related expenses.
You will need to determine which credit offers you the most benefit in a given year. Proactive Tax Planning will minimize your tax liability thru educational planning.
FAQ 2: Can I use 529 plan funds to pay my child's college expenses in the same year I claim an education tax credit?
Yes. You can use 529 plan funds to pay for your child's college expenses in the same year you claim an education tax credit such as the American Opportunity credit or Lifetime Learning credit. But there's a caveat. You can't use the same college expenses to qualify for the federal tax-free 529 withdrawal and the tax credit; the expenses you use to qualify for each must be different. Otherwise your 529 withdrawal will not be free from federal income tax.
For purposes of your 529 plan, your qualified education expenses are first reduced by expenses used to compute your American Opportunity credit or Lifetime Learning credit. The remaining expenses may be paid with the funds you withdraw from the 529 plan (and you won't pay any federal income taxes on those funds). You will pay federal income tax (and, in most cases, a penalty and maybe some state income taxes) on any part of your 529 plan withdrawal that remains after paying these expenses.
Another option is to waive the American Opportunity credit or Lifetime Learning credit. This waiver may make sense if the value of the education credit is less than the value of federal income tax-free (and penalty-free) withdrawals from your 529 account.
For more information, see IRS Publication 970, Tax Benefits of Education.
Note: Before investing in a 529 plan, please consider that there are investment objectives, risks, charges, and expenses. Contact us for more information on financial planning.
Your actual student loan payments aren't deductible, but the interest portion might be, thanks to the student loan interest deduction. In 2020, the maximum deduction is $2,500. You don't need to itemize to claim this deduction.
To qualify, you must meet a few requirements:
First, the student loan on which you're paying interest must be one that you incurred to pay college expenses when you were at least a half-time student. This requirement excludes part-time adult learners or other nontraditional students.
Second, you must meet income limits. In 2020, to take the full student loan interest deduction, single filers must have a modified adjusted gross income (MAGI) below $70,000 and joint filers below $140,000. A partial deduction is available for single filers with an MAGI between $70,000 and $85,000 and joint filers with a MAGI between $140,000 and $170,000.
Third, if you are claimed as a dependent on someone else's return, you can't take the deduction. If you are a dependent and your parent borrows money to pay for your college tuition, he or she may claim the student loan interest deduction.
You should receive Form 1098-E from your lender showing the total amount of interest you paid for the year. If not, contact your lender to request this information.
For more information on the student loan interest deduction, see IRS Publication 970, then contact us.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.