Tax Workshop in Cincinnati on 2/26/09

I will be doing a workshop on tax issues for people with disabilities this Thursday, February 26, 2009, from 6:30 pm until 8:00 pm at the Pleasant Ridge Community Center, 5915 Ridge Road.  For more information, or to register, please call or e-mail Sue Schindler at sue@archamilton.org or 513-821-2113 x 112.

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How to respond to nasty letters from the IRS

A three-part "series" I posted on eHow may help you, if you ever get into a fix with the IRS:

Part 1 -   http://www.ehow.com/how_4792037_respond-nasty-letters-irs-part.html

Part 2 -  http://www.ehow.com/how_4792091_nasty-letters-irs-part-ii.html

Part 3 -  http://www.ehow.com/how_4792148_nasty-letters-irs-part-iii.html

I hope you never need these, but here they are, if you do.

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IRS lists some benefits for disabled taxpayers

Tax Benefits for Disabled Taxpayers

There are several tax credits and benefits available to qualifying taxpayers with disabilities as well as to the parents of disabled children. Listed below are several tax credits and other benefits available if you or someone else listed on your federal tax return is disabled.

The Earned Income Tax Credit The EITC is available to disabled taxpayers as well as to the parents of a child with a disability. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability, who have no qualifying children, but are older than 25 and younger than 65 do, in fact, qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.

The Credit for the Elderly or Disabled
This credit may be available to taxpayers who are age 65 or older, or who are younger than 65 and are retired on permanent and total disability.

Child or Dependent Care Credit
Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.

Impairment-Related Work Expenses
Employees who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.

Impact on the Standard Deduction
Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.

Gross Income
Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income may be excluded from a taxpayer’s gross income.

For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities, or Publication 907, Tax Highlights for Persons with Disabilities, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Publication 3966, Living and Working with Disabilities
• Publication 907, Tax Highlights for Persons with Disabilities

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Do people who receive SSI have to pay taxes?

Q My son with autism turned 18 this summer and started receiving SSI in August. Does he file a tax return? Do you know what forms he would use? Does SS send out a w-2 of some kind? So far, we haven’t received anything.

A. If your son's only income is SSI, he would not file a tax return. SSI is not considered income for tax purposes. The Social Security Administration does send out tax notices, Form SSA-1099, to people who need to report this on their tax returns. Your son should not receive the SSA-1099, and you don't need to be concerned about filing a tax return. By the same token, recipients of SSI are not eligible for the 2008 tax stimulus payment, nor the 2009 credit for any unreceived stimulus payment.

How Does US Tax Court Decide Amount of Deduction?

Q. I wasn't able to keep complete records of my Schedule A deduction for ______________, but I was able to estimate the deduction pretty accurately. If I am audited and the deduction is disallowed, how will the US Tax Court decide if I am entitled to the deduction?

A. While the IRS requires a taxpayer to keep sufficient records to establish the amount of a deductible expense, the Courts have been more accepting of human behavior. In 1930, a Federal Court of Appeals established a rule of law known as the "Cohan Rule." This rule is named after George M. Cohan whose case prompted the Court to adopt the rule. The Cohan Rule is still alive and well and applied by the Tax Court as recently as this month.

The Cohan Rule was stated this way in a recent Tax Court opinion: "Generally, when evidence shows that a taxpayer incurred a deductible expense, but the exact amount cannot be determined, the Court may approximate the amount, bearing heavily if it chooses against the taxpayer [because it is the taxpayer's fault that an exact amount cannot be established]. . . . The Court, however, must have some basis upon which an estimate can be made."

I believe the Rule could be used in the following situation. Taxpayer volunteers at her church (or synagogue or mosque) once a week doing office work. Taxpayer has recorded from her car's odometer that it is 13.2 miles from her home to the church (26.4 miles round trip). Taxpayer also knows that she did not volunteer every week, because she had the flu once or twice, and she was away on vacation for three weeks. She thinks she also missed one or two other days. Taxpayer decides to take a mileage deduction for her charitable volunteer work at the church by multiplying 45 days by 26.4 miles to get 1188 miles. She takes this figure and multiplies it by the standard mileage rate of 14 cents per mile for charitable volunteering. 1188 times $.14 equals $166.32.

IRS audits taxpayer. Even though the auditor knows the Cohan Rule and should apply it in the audit, he denies taxpayer the entire $166.32 deduction, because the taxpayer does not have a log or calendar showing exactly which weeks she did and did not volunteer at the church. Perhaps there are other audit changes made by the IRS, and the IRS sends taxpayer a report stating that taxpayer owes an additional $100 in taxes and $65 in penalties and interest. The taxpayer is so angry about this, she decides to file a Tax Court petition herself.

If no satisfactory settlement is arrived at prior to trial, the case will be tried to one of the tax court judges or special trial judges. At the trial, the taxpayer calmly explains to the Judge how she arrived at the mileage deduction for her volunteering at her church. (She might also present testimony from another volunteer to prove that she did, in fact, volunteer quite regularly.) The Judge decides that she is a credible witness, that her calculations make sense, but the Judge is not completely convinced that 45 days was correct. Applying the Cohan Rule, the Judge decides that the evidence showed that the taxpayer incurred the deductible expense and decides that the taxpayer should receive a deduction for 43 days, believing that the taxpayer probably missed a few more days than she remembered. Therefore, the Judge allows a deduction calculated as 43 days times 26.4 miles times $.14 per mile or $158.93.

The moral of this example is that the taxpayer should have kept a complete and accurate log of her volunteer days at her church, but, even though she failed to do so, she shouldn't lose the entire deduction for lack of specificity.

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CAPITAL EXPENDITURES

Q. My doctor has recommended that I have heart surgery in the next few months because of my heart condition. I am going to need to install an elevator in my home, so I will be able to get to my bedroom on the second floor. Is any of this expense tax deductible?

A. Yes. The general rule is that capital expenses for medical care can be deducted as a medical expense to the extent that the cost of the permanent improvement exceeds any increase in fair market value of your property. With the help of a real estate professional, determine the amount, if any, the value of your house will increase with the installation of the elevator. Subtract the cost of the increase in value from the cost of installing the elevator. Any amount greater than zero equals the amount of medical expense you can add to other medical expenses for you, your spouse, and your dependents to arrive at the "Medical and dental expenses" figure to enter on Line 1 of your Form 1040, Schedule A.

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Standard Mileage Rates

The 2008 standard mileage rates were:

• Business miles driven - 50.5 cents per mile from January 1, 2008, through June 30, 2008, and 58.5 cents per mile for July 1, 2008 through December 31, 2008.
• Medical and Moving miles driven - 19 cents per mile from January 1, 2008, through June 30, 2008, and 27 cents per mile for July 1, 2008 through December 31, 2008.
• Miles driven in service of charitable organizations - 14 cents per mile for the whole year.

The 2009 standard mileage rates are:

• Business miles driven - 55 cents per mile.
  
• Medical and Moving miles driven - 24 cents per mile.
• Miles driven in service of charitable organizations - 14 cents per mile.

(Reference: IRS Announcement, November 24, 2008)

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