Examples of The Types of Questions We Are Asked - And Our Answers | Tax Tip of the Week | No. 116
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.