Costs for medical and dental care continue to rise in the U.S. along with health insurance deductibles, which means greater out-of-pocket expenses for many people. Yet the good news is there is a way to offset these costs by deducting them on your annual tax return. The IRS allows taxpayers to deduct medical and dental expenses on Schedule A of Form 1040 as an itemized deduction, provided they meet certain qualifications.

Qualifications

It is important to note that certain qualifications must be met before a taxpayer can deduct medical and dental expenses.

• First, the taxpayer must be eligible to itemize deductions, meaning that the total itemized deductions must be greater than the standard deduction: $6,300 for single taxpayers and $12,600 for married taxpayers filing a joint return in 2015.
• In addition, expenses must exceed a specific threshold. Taxpayers age 64 and under can only deduct the portion of medical and dental expenses that exceeds 10% of adjusted gross income (AGI). However, if either the taxpayer or their spouse is age 65 or older, the expenses only need to exceed  7.5% of AGI.

What are deductible medical and dental expenses?

Medical and dental expenses include the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the cost for treatments affecting any part or function of the body (IRS Publication 502). This includes payments for services rendered by physicians, surgeons, dentists, and other medical practitioners as well as the cost of equipment, supplies, and diagnostic devices needed for these purposes. In addition, medical and dental expenses include insurance premiums paid for medical and dental insurance.

The following are examples of qualifying medical and dental expenses:

• Ambulance services
• Physical examinations
• Prosthetic limbs
• Dentures
• Medical supplies including bandages
• Chiropractic services
• Contact lenses and eyeglasses
• Dental services provided in a dental office including teeth cleaning, application of sealants, and fluoride treatments, X-rays, fillings, braces, and extractions
• The cost of transportation to receive medical services
• Fertility enhancement procedures
• Hearing aids
• Prescription medication and insulin
• Psychiatric care
• Smoking cessation programs, however, this does not include amounts paid for drugs that do not require a prescription, such as nicotine gum or patches

This is not an all-inclusive list, but it should give you some idea of the type of expenses that are deductible as medical and dental expenses on Schedule A.

Non-deductible expenses

Taxpayers should not take a deduction for any insurance premiums paid by an employer-sponsored health insurance plan unless the premiums are included in your taxable wages on Form W-2. In addition, payments for medication that do not require a prescription are not deductible on Schedule A. The exception to this is for insulin used for the treatment of Diabetes. Any expenses that are reimbursed by your medical or dental insurance should also not be deducted on Schedule A.

The list of expenses that do NOT qualify as medical and dental expenses includes, but is not limited to:

• Controlled substances that are illegal under federal law. This includes marijuana that has been legalized by some states.
• Cosmetic surgery, unless it is necessary to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease
• Health club dues
• Maternity clothes
• Nutritional supplements

Conclusion

Although thresholds need to be surpassed in order to deduct medical and dental expenses on your tax return, there are many categories of expenses that are overlooked by taxpayers. It may be worth taking some time to review your qualifying expenses. Because if you have enough medical and dental expenses to take a deduction, this will increase your total itemized deductions and lessen your taxable income.

We encourage you to contact one of our tax professionals should you need help determining if you can take a deduction for medical and dental expenses on your tax return.

Fall is upon us and kids are back at school. Working parents may need childcare before, during or after school. And we all know that the costs of childcare can certainly add up.

 

But there is good news: You may qualify for a federal tax credit that can lower your taxes. The IRS has put together some facts you should know about the Child and Dependent Care Credit.

10 Facts you should know about the Child and Dependent Care Credit:

1. Care for Qualifying Persons. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 usually qualify. For more about this rule see Publication 503, Child and Dependent Care Expenses.

2. Work-related Expenses. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.

3. Earned Income Required. You must have earned income, such as from wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care. This rule also applies to you if you file a joint return.

4. Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse. 

5. Type of Care. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.

6. Credit Amount. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income.

7. Expense Limits. The total expense that you can use for the credit in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.

8. Certain Care Does Not Qualify. You may not include the cost of certain types of care for the tax credit, including:

• Overnight camps or summer school tutoring costs. 
• Care provided by your spouse or your child who is under age 19 at the end of the year.
• Care given by a person you can claim as your dependent. 

9. Keep Records and Receipts. Keep all your receipts and records. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your tax return.

10. Dependent Care Benefits. Special rules apply if you get dependent care benefits from your employer. See Publication 503, Child and Dependent Care Expenses.

These tips are taken from IRS Special Edition Tax Tip 2015-12

 

 

 

 

 

You may already contribute to an organization here in Colorado that helps children. But did you know that your donation may qualify for a sizable tax credit? The Colorado Child Care Contribution Tax Credit is available for Colorado donors who make a contribution to a qualifying child care organization or fund. Such a donation can generate a Colorado tax credit of up to 50% of your total donation. However, please note that in-kind donations (non-cash gifts like school supplies, snacks, etc.) don’t qualify.

What donations qualify?

To qualify for this tax credit, your donation(s) must be made to an organization that promotes the establishment or operation of a licensed child care facility or program. For example:

• Child care centers
• Placement agencies
• Family child care homes
• Foster care homes
• Homeless youth shelters
• Residential child care facilities
• Residential treatment centers

*Registered child care programs that provide services similar to licensed programs may also qualify.

How your child care donation reduces your taxes

Here’s how your child care donation gives back to you, the taxpayer. Let’s say you are in the 25% Federal income tax bracket, itemize your deductions, and make a $5,000 donation to a not-for-profit licensed agency that provides child care to children under 12. When you file your federal taxes, you’ll receive a $5,000 charitable deduction, which will reduce your federal liability by $570 and your Colorado liability by $230. You will then receive a $2,500 credit against your remaining Colorado liability when you file your state taxes. The credit will either reduce your payment or increase your refund. So, although you may have written your donation check for $5,000, your contribution actually cost you only $1,700. (See the chart below.)

Things to remember

• The tax credit is limited to $100,000 per year
• The tax credit is limited to the tax liability of the taxpayer. Any excess credit can be applied against the tax liability in up to five successive years.
• Your donation must be made to licensed child care programs that benefit children age 12 or under. Organizations that serve children under 12 and over 12, unless grandfathered, will allocate your donation between both groups, unless specific donor restrictions are given at the time of the donation.
• The organization you donate to will provide you with a DR1317 Child Care Contribution Tax Credit Certification form for you to attach to your income tax returns for the year you claim the credit.

As you can see, when you give a financial gift to a child care organization, you not only help improve the lives of local families, but also help yourself save by utilizing an effective tax strategy. If you have any questions about the Colorado Child Care Contribution Tax Credit, please do not hesitate to contact us.

A U.S. charity recently made the news when it was accused of reporting an inaccurately high percentage of every donated dollar that went to its program services. The media outlet that uncovered the discrepancy looked beyond that claim, though, to scrutinize the organization’s outcomes — a strong sign of the growing importance of outcome measurement. Savvy stakeholders, as well as savvy not-for-profit's, realize that outcomes can convey a more complete picture of an organization’s performance than figures pulled from financial statements.

What is Outcome Measurement?

Outcome (or performance) measurement is essentially a method of determining the impact of a program or activity. Unlike traditional measures, such as number of clients served or the amount of donations received, outcome measures allow an organization to assess whether a program is achieving its intended results. An “outcome” is generally described as a specific desirable result or quality of a not-for-profit’s services.

Outcome measures should gauge the level of accomplishment of a program goal in terms of changes in the lives of individuals, families or the community at large. For example:

• A program designed to teach reading to adults may use the literacy rate for the area served as an outcome measure.
• An organization whose mission is to help teens stay in school by providing a supportive after-school environment with tutors and supervised activities might look at changes in the dropout rate, graduation rate or similar outcomes.

Bear in mind, though, that outcome measurement won’t prove that the results — good or bad — are due solely to your efforts.

An outcome measurement program will require an organization to identify appropriate outcomes and indicators of those outcomes. It will also involve the collection of data relevant to the indicators and analysis of that data. This is done utilizing surveys or interviews of clients, program dropouts and their family members

The not-for-profit should release regular user-friendly reports of its findings to stakeholders. And, of course, the organization must take appropriate action based on the findings.

What can tracking outcomes achieve?

Some not-for-profit's may have no choice when it comes to outcome measurement — grant makers or other stakeholders often require it. But even organizations free of such demands should consider engaging in the process.

Outcome measurement can act as a check that the not-for-profit is successful in reinforcing its mission and goals for board members, staff and volunteers. Measuring and reporting outcomes can take the focus away from how resources are being allocated, such as the percentage of funds spent on “program related activities.” Achieving sustainable success may include investing in such non-program-related activities as training, leadership development and strengthening internal controls, all of which improve outcomes.

The results of outcome measurement can be shared with other existing and potential stakeholders to demonstrate the impact of the organization’s programs and activities and, in turn, support marketing and fundraising efforts. The results can also prove helpful with short and long term planning. It makes it easier for the not-for-profit to identify effective programs and activities, as well as those in need of improvement.

Are There any Caveats?

Yes. Outcomes need to be measured on an ongoing basis, rather than examining client or other conditions only shortly after the completion of service. A not-for-profit should also return to evaluate the conditions down the road.

Additionally, not every important outcome will be immediately measurable. Some outcomes take years or longer to materialize. In such cases, a not-for-profit can identify milestones to measure progress as time goes by. For example, stronger relationships among community members can be difficult or impossible to measure but still merit regular consideration.

Finally, while outcome measurement can be helpful for planning, organizations should remember that it’s an approach used for looking backwards. Budgeting, policymaking and other long-range planning decisions, on the other hand, are about the future, and conditions should be treated as such.

It Can be a Process

While different organizations will take different approaches to outcome measurement, every not-for-profit can expect some stumbles along the way. Nothing is written in stone, though. The process can be adjusted as necessary. The important thing is to make outcome measurement a regular, ongoing activity that reflects the organization’s mission-driven priorities.

What about Smaller Not-For-Profit's?

Outcome measurement isn’t only effective for larger organizations — in fact, it might be even more important for smaller not-for-profit's with fewer resources. Organizations that need to make every dollar and staff or volunteer hour count can use outcome measurement to determine which programs and efforts truly work and then either eliminate or strive to improve those that don’t.

Moreover, smaller not-for-profits can’t afford to stick with traditional metrics such as overhead ratios while larger organizations move on to outcome measurement. Like it or not, those organizations tend to set the trends. As larger not-fot-profit's increasingly make their outcome measures available, grant makers, social investors and individual donors will increasingly expect to see such measures before they pull out their wallets. Smaller organizations that fail to adopt outcome measurement risk being left behind when it comes to funding support.

Feel free to contact us with questions, clarifications, or assistance with Outcome Measurement.

Should You Add a Nonphysician Provider to the Mix?

Your practice has grown to the point that same-day appointment slots have all but disappeared. Your established patients are requiring more time and attention than you can comfortably provide, and new patients are being turned away. Big picture: you're losing revenue and risking the loss of patients to other practices. 

If you’ve recently sought new employment, you may be able to offset some of the expenses related to the search. Expenses related to job hunting may qualify for a deduction on your individual income tax return. If you move for business or employment purposes you may be able to deduct many of the expenses incurred. Potential deductions include the cost of travel and moving your household goods and personal effects.

Job Hunting

If you are seeking a new job in your same occupation, you may be able to deduct the following expenses incurred in your search:

1. The cost of résumé preparation and mailing.
2. Travel – If your job search requires travel, you may be able to deduct some or all of the travel expenses.
3. Fees paid to job placement agencies.

It is important to remember that these deductions are only available to taxpayers seeking new employment in their current occupation, not to individuals seeking a first job in a new line of work.

Moving Expenses

When you move for business or employment purposes, many of the following expenses incurred may qualify for tax deductions:

1. Moving your household goods and personal effects (this also includes reasonable storage costs incurred during the move).
2. Travel to your new residence (this includes lodging, but not meals).

In order to deduct moving expenses, the IRS requires that three basic tests are met. These tests are the distance test, the time test, and that your move closely relates to the start of work. These can be met as follows:

1. The distance test – The general measure for this test is that your new place of employment/business is at least 50 miles further from your previous residence than your former workplace was from your previous residence. If this is your first job, your new job must be at least 50 miles from your previous residence.
2. The time test – The basic requirement of this test is that you work at least 39 weeks of the following twelve month period, in the area of your new residence.
3. Your move closely relates to the start of work – There are two parts to this requirement.
   1. While there are a few exceptions based on circumstance, the move must generally occur within one year of starting the new job.
   2. You will save time/money commuting from your new residence to your new place of work, or you are required to live at your new home as a condition of your employment.

A great resource for information on the deductibility of moving expenses is IRS Publication 521.

If you have any questions on deduction, don’t hesitate to reach out to us.

Tax-related identity theft occurs when someone uses your Social Security number to file a tax return in order to claim a fraudulent refund. Generally, the identity thief will file the fraudulent tax return early in the filing season, typically during January. You will most likely be unaware you have even been victimized until you file your tax return and learn that someone has already filed using your Social Security number.

Know the Warning Signs

You should be on alert for possible identity theft when:

• Your electronically filed tax return is rejected by the IRS due to more than one return being filed using the same Social Security number.
• You owe additional tax or have had collection actions taken against you for a year you did not file a tax return.
• IRS records indicate you received wages from an employer unknown to you. 

When our firm suspects an identity theft issue with your tax return (typically due to an e-file rejection by the IRS), we will contact you to inform you of the occurrence.There will then need to be follow-up with the IRS to determine if they have already issued Letter 5071C (Identity Verification Letter). This letter will inform you of two methods of providing verification of your identity. This can be accomplished by calling the Identity Verification line (1-800-830-5084) or by using the online IRS Identity Verification Service. The online service is the quickest method and will ask you multiple-choice questions to verify whether or not the return flagged for further scrutiny was filed by you or someone else.  Please bear in mind that the IRS will only send Letter 5071C by mail. The IRS will never request that you verify your identity by contacting you by phone or email. If you receive such calls or emails, they are likely a scam. 

If Letter 5071C has not been issued, we will likely need to prepare Form 14039 Identity Theft Affidavit for you to submit to the IRS on a paper filed tax return. Form 14039 alerts the IRS that someone has accessed your personal information and it has affected your tax account since they have filed a return using your identifying information.  As an attachment to Form 14039, you will need to provide a copy of your Social Security card, driver’s license, U.S. Passport, military ID, or other government-issued ID card in order to prove your identity. Unfortunately, the filing of Form 14039 will delay the processing of your tax return as the normal processing time for an identity theft return can run 120 days or longer.      

After Form 14039 has been processed by the IRS, they will generally issue you a six-digit Identity Protection pin number for you to use in filing your tax returns going forward. The IRS has stated that they will issue a new pin number each year, in December. If working with the IRS has not brought a satisfactory resolution or you do not receive your six-digit pin number, you should contact the IRS Identity Protection Specialized Unit at 1-800-908-4490.            

Steps to Take in the Event of an Identity Theft Issue

When someone has enough of your personal information to file a fraudulent tax return, they can use your identity to commit other crimes. In addition to alerting the IRS as described above, you should also take the following steps:

• File a report with the local police.
• File a complaint with the Federal Trade Commission at www.identitytheft.gov or the FTC Identity Theft Hotline at 1-877-438-4338.
• Place a “fraud alert” on your credit reports with the three major credit bureaus.
• Alert your banks and other financial institutions you work with.

7 Easy Steps to Reduce Your Risk

1. Do not carry your Social Security card or any document with your Social Security number on it.
2. Do not give a business your Social Security number just because they ask for it. Only provide this information when absolutely necessary.
3. Protect your personal financial information at home and on your computers.
4. Check your credit reports annually.
5. Check your credit card statements and bank account activity regularly.
6. Review your Social Security Administration earnings statement annually.
7. Do not give out your personal information over the phone, through the mail, or the internet unless you have initiated the contact or are sure you know who is asking. 

In Conclusion

Identity theft is one of the fastest growing crimes in the United States and around the world. It is a persistent and evolving threat and the harm it causes victims cannot be overstated. Today’s thieves are a formidable enemy. They are an adaptive adversary, constantly learning and changing their tactics to circumvent the safeguards put in place to stop them. Tax-related identity theft is no longer random individuals stealing personal information. We are dealing more and more with organized crime syndicates here and around the world. 

IRS Commissioner John Koskinen recently stated that no priority is higher for the IRS than making sure the tax system is secure and that they are continuing to do everything within their power to safeguard taxpayers and their personal information.   

If you have any questions or concerns regarding identity theft don’t hesitate to contact us!       

The active involvement of a physician owner is ultimately the most effective control against fraud. However, in the current demanding environment for physicians and dentists, the reality is that this responsibility may need to be delegated to a practice manager.  

• Make sure that every patient encounter on the daily schedule has a charge and a payment. All payments received must be accounted for in the reconciliation at the end of the shift or end of the day. The total receipts in the general ledger (posted from the deposit slip) must agree to the total receipts posted in the billing system daily.
• Randomly conduct spot checks every few days and routinely review adjustments to ensure there was a valid reason for making them. Often, just the knowledge that someone is looking over their shoulder is enough to keep would-be fraudsters in line.
• Ensure that there is a regular check signer in the practice, preferably an owner, and that the authorized signer is familiar with approved vendors. There should be an invoice—stamped “paid” so it can’t be paid a second time either accidentally or deliberately—attached to each check, and the invoice should be reviewed by the signer for reasonableness before signing the check.  

Tip: Throw away all signature stamps!  

• Bank accounts should be set up so that transfers can be made only between specified accounts at the same bank and only by authorized individuals.
• Require that overtime be approved in advance by owners. Practice managers and/or owners should periodically review payroll rates to make certain that the agreed-upon rate is in use for each employee.
• Require written annual competitive bid proposals from vendors. The process of obtaining written bid proposals prevents employees from entering into fraudulent, long-term relationships with vendors.

Who Is Opening Your Bank Statement?

• Scan the bank statement and look for unusual withdrawals during the month.
• Review the cancelled checks and make sure they are signed by authorized signers.  
• Review the payees on the cancelled checks to make sure the payees are familiar.  
• For smaller practices, a CPA firm or outside bookkeeper could open the bank statements or download them directly from the bank and reconcile the cash to strengthen internal controls.