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Examples of The Types of Questions We Are Asked – And Our Answers | Tax Tip of the Week | No. 116 October 26, 2011

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , add a comment
Questions & Answers  

From time to time we are going to print the questions and answers that we encounter as our Tax Tip of the Week article. 

Q:  “I took a distribution from my 401(k) to purchase my first home.  I heard I don’t have to pay the 10% premature distribution penalty.” 

A:  A distribution from a 401(K) prior to age 59.5 is subject to a 10% penalty.  Only distributions from an IRA may qualify for an exception to the penalty if all the other rules are met.  The IRA first- time home buyer exception is limited to a one-time maximum distribution of $10,000. 

Q:  “Are the social security survivor benefits paid to a child after the death of a parent considered taxable income?” 

A:  Survivor benefits can be taxable income just like retirement benefits and are calculated the same way.  The survivor benefits need to be added to all other income of the child to determine if a tax return needs to be filed.  

Q:  “We claim my mother as a dependent on our tax return.  We recently moved her to an assisted living facility.  We paid $36,000 last year to the facility.  The statement we received shows $21,000 was allocable to medical care and the remaining $15,000 was for rent and meals.  How much can we claim as deductible medical expenses?” 

A:  It depends on the principal reason for the mother staying at the facility.  If the main reason was for medical care, the entire $36,000 is a deductible medical expense.  However, if medical care is not the principal reason for her admission then only $21,000 could be deducted as a medical expense. 

Q: “I perform volunteer work for a charitable organization.  Does the amount I pay for child care count as a charitable deduction?” 

A:  No.  The out-of-pocket costs you incur while performing charitable services do not include child care.  Child care costs receive special tax treatment only if you are working or looking for work. 

Let us know if you have any questions. 

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.


We See These All The Time…. | Tax Tip of the Week | No. 115 October 19, 2011

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Eight Tips for Taxpayers Who Receive an IRS Notice  

Every year the Internal Revenue Service sends millions of letters and notices to taxpayers, but that doesn’t mean you need to worry. Here are eight things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.

1. Don’t panic. Many of these letters can be dealt with simply and painlessly. 

2. There are a number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. 

3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry. 

4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return. 

5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due. 

6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write the IRS to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left part of the notice. Allow at least 30 days for a response. 

7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right corner of the notice. Have a copy of your tax return and the correspondence available when you call. 

8. It’s important that you keep copies of any correspondence for your records. 

Most importantly—do not ignore any correspondence! 

We highly encourage you to give us a call if you receive anything from the IRS, State of Ohio, or any city tax department.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.


What is the Use Tax? | Tax Tip of the Week | No. 114 October 12, 2011

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Ohio Offering a Tax Amnesty Program

The use tax was enacted in 1936, one year after Ohio sales tax went into effect.  Since then all individuals and businesses have been subject to paying use taxes.  The problem is, very few individuals and businesses are paying this tax. 

What is it?  The use tax is a complement to the sales tax—same tax rate, same tax base.  Use tax should be paid to Ohio for any taxable goods or services delivered to Ohio.  The best example is products purchased from an internet supplier who ships to you in Ohio, but does not collect Ohio sales tax at the time of purchase. 

Beginning October 1, 2011 until May 1, 2013 the Ohio Department of Taxation (ODT) is offering an amnesty program to businesses to solve a tax problem they may not know they even have.  The amnesty program allows businesses that owe use tax to pay back taxes incurred since January, 2009 with no penalty or interest.  The program also provides the option of entering into a payment plan, if the amount of tax owed exceeds $1,000.  In exchange, businesses that sign up for amnesty must register for a use tax account and going forward, must comply with all provisions of use tax law.  Note:  Currently, the amnesty program is only being offered to businesses. 

ODT Commissioner Joe Testa recently said, “Despite its long history, the use tax is a relatively new issue for many businesses.  With the growth of the Internet and mail-order commerce, more and more companies are buying products and services from suppliers outside Ohio, who don’t collect sales tax.  It can be complicated keeping track of what’s taxable and what’s not.  The amnesty program is designed to give taxpayers time to build a greater understanding of the tax and pay off any outstanding taxes.” 

On September 28, 2011 ODT began mailing over 200,000 invitations to businesses encouraging them to take advantage of the amnesty program. 

We expect that small businesses will be the target of audit activities since many do not have the tax expertise to address and understand this tax. 

You will definitely want to give us a call on this if you have any questions.  Ohio wants YOUR taxes! 

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Clarification of Qualified Medical Deductions | Tax Tip of the Week | No. 113 October 6, 2011

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Tax Court Clarifies Qualified Medical Deductions

Up until now, it has been unclear what medical expenses are eligible for a tax deduction.  A strict reading of the prior rules seemed to indicate only expenses incurred to pay for “skilled” caregivers was a qualified expense.

In a recent case (Est. of Baral, 137 TC No. 1) the Tax Court ruled that costs of a caregiver for a dementia patient qualifies as a medical expense.  In this case, a mother was diagnosed with the disease and her doctors determined she needed 24-hour supervision.  Her son hired caregivers to assist her.  Although the caregivers were not licensed health care providers, the payments were deemed as medical expenses.  Her doctor certified that her dementia endangered her health because she otherwise would not take her medications.

Furthermore, the Court ruled that such deductions are not limited to dementia patients.  The cost of personal care services qualifies for a medical expense for any patient unable to perform at least two of the six activities of daily living—eating, toileting, transferring, bathing, dressing and continence.  The certifying professional can be a doctor, registered nurse or licensed social worker.

If you know of anyone in this situation, please let them know.  These patients definitely need every break they can get.

As always, we are just a phone call away to discuss this and other issues in greater detail.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.