Posts Tagged IRS

Is that Mint Tea Deductible?

  • A Taxpayer suffered from Migraine Headaches. Her Doctor prescribed an herb to treat her headaches, and the taxpayer sought reimbursement from her FSA account for the cost of the herbs.

Ruling: For the Taxpayer! An FSA can generally reimburse only an expense primarily for medical care, per the Internal Revenue Code §213 (d) Eligible Medical Expenses. But, naturopathic care, such as herbs, can qualify as a reimburseable medical expense if the taxpayer establishes that he or she:

  1. has a medical condition;
  2. is purchasing the herb to treat or alleviate the medical condition; and
  3. would not have purchased the herb if the individual had not been diagnosed with the medical condition.

AIPB TIP: It’s a good idea to have something in writing to indicate that the doctor believed the treatment was medically necessary.



The preceding passage is from the American Institute of Professional  Bookkeepers (AIPB) August edition of their newsletter called, 'The General Ledger.'

Tags: , ,

No Comments

Economic Recovery Payment Look Up Tool

The IRS developed the “Did I Receive an Economic Recovery Payment (ERP)?” look up tool which gives taxpayers an easy way to determine if they received the one-time ERP payment and which agency made the payment.

Taxpayers can call 866.234.2942 to access the phone application then select Option 1. The web application will be available March 23 on the IRS website. Taxpayers who had earned income in 2009 or are government retirees and received an ERP need to report whether or not they received an ERP and the amount when they prepare their Schedule M, Making Work Pay and Government Retiree Credits.

This reduces the credit you will receive from $400 to $150 and your return is rejected if it is not reported!

The one-time $250 ERP was paid to individuals in the following categories:

  • Retirees, disabled individuals, and Supplemental Security Income (SSI) recipients receiving benefits from the Social Security Administration,
  • Disabled veterans receiving benefits from the U.S. Department of Veterans Affairs, and
  • Railroad Retirement beneficiaries.

When using the IRS look up tool, taxpayers will have to enter three pieces of information to determine if they received an ERP:

  • SSN
  • Date of birth
  • Zip code from the last filed return

A separate telephone call or web inquiry must be made for each taxpayer, even if filing a joint tax return.

Tags:

No Comments

Stock Market and your IRA/SEP/401(k)- Time for level heads!


I know how scary it is for all of you as you watch your life savings decline in value by 35-60% so far this year. If you are nearing retirement or in retirement, it is even more difficult. Now is the time for level heads.

Many of you have called me and asked if you should pull your 401(k) from the market! Definitely not! The Wall Street Journal has an excellent blog entitled the Retirement Debate. You can subscribe to this blog by going to the Smart401blog.

So, why am I so adamant against withdrawing your money from your 401(k), Traditional IRA, or SEP plan. You have already lost a significant percentage of your money (25-50%). This was all PRETAX money. So, if you withdraw your money and you are under 59 1/2 years, you will have your loss to date, plus the following losses – 10% penalty for early withdrawal from the IRS, and since this was all pretax money, depending on your tax bracket, another 15-33% in taxes. So, if you had $100,000 in your 401(k), Traditional IRA, or SEP, and you have lost $50,000 so far. You now have $50,000. The 10% penalty for early withdrawl is $5,000 and you further have to pay taxes on your distribution (we’ll assume a 25% tax bracket)- or $12,500. So, if you withdraw your $50,000 – after all taxes, you will net $32500, and your total loss will be 67.5% and not just the 50% you lost so far!

You need to really think about the tax ramifications of withdrawing from your Pretax IRA/401(k) or SEP when determining if it is prudent to withdraw.

Further, I recommend that you continue to invest- consistent with your particular investment strategy and risk level. Why? So,  you can continue to get the tax breaks, which are substantial.  Further, if you are in a 401(k), by not investing you are walking away from the free money (or pretax employer match) that so many employers offer. If you buy the conventional wisdom of the Financial advisors, they indicate that over time you will recapture your losses and regain your money. If that is too risky for you, you have so many other options.

For example, my son, who is affiliated with this firm, has a very low tolerance for risk. His IRA is in a credit union in CD shares, where is is getting 4.5% a year. No high returns, but no risk either. He has not lost a penny. Further, the FDIC is insuring his deposits to $250,000 per year. So, by reallocating your ongoing investment to a safe vehicle, you can garner the peace you might need.

In terms of risk, if you remain particularly nervous, you can reallocate your existing investment to safer items, but know that your opportunity to regain the losses is minimized.

You also need to look at the college savings 529 plans and depending on the age of your child, you may want to move to more conservative investments, so the money is there at college time.

As your accounting professional, I cannot tell you where to invest your money. Only you know the level of risk you are willing to take. The higher the risk, the higher the potential return, but also the higher the potential for loss. The lower the risk, the lower the potential return and the lower the risk of loss.

I strongly recommend you talk to a financial advisor, like a CFA or a CFP who operates on a fee based method instead of commission, as they will be your best bet for managing your particular portfolio and risk level. If you do not have one, clicking on the links above or going to our recommended advisors section of our website will assist you in finding one.

Remember, keep a level head, so you can keep more of your money and not let Uncle Sam have it!

Tags: , , ,

No Comments