It's now officially time to get serious about filing your 2011 Form 1040, especially if you expect a refund. Here are five little-known write-offs that could make your refund bigger or cut what you owe.
1. Medicare Insurance and Long-Term Care Premiums
You can claim a Schedule A itemized deduction for unreimbursed medical expenses, including health insurance premiums, to they extent they exceed 7.5% of your adjusted gross income, or AGI. (AGI is the number at the bottom of Page 1 of your Form 1040.) The 7.5%-of-AGI hurdle may seem insurmountable, but seniors can often clear it--especially if they remember to include the following in the medical expense pot:
*Premiums for Medicare Part B coverage. For 2011, the per-person Part B premium for most folks was $96.40 per month ($1,157 for the year). For higher-income folks, the premium could be as much as $369.10 per month ($4,429 for the year).
*Premiums for Medicare Part C coverage (so-called Medicare Advantage HMO-type coverage).
*Premiums for Medicare Part D coverage (for prescription drugs).
*Premiums for Medicare supplemental insurance (so-called Medigap coverage).
*Premiums for qualified long-term care insurance, subject to the following age-based limits for each covered person.
2. Medical Expenses Paid by Someone Else
As explained above, you can only deduct unreimbursed medical expenses to the extent they exceed 7.5% of your AGI. In a 2010 Tax Court decision, the IRS argued that a daughter could not deduct some medical expenses because she did not pay for them with her own money. Instead, her mother covered the expenses by directly paying the medical service providers. The Tax Court disagreed. The facts of the case demonstrated that the mother intended the payments to be gifts. Therefore, the Tax Court characterized the transactions as gifts from the mother to the daughter followed by payment of the expenses by the daughter with the gifted funds. So the daughter was allowed to count $24,559 of medical expenses that were actually paid by her mother in calculating her medical expense deduction. Source: Judith Lang, TC Memo 2010-286 (2010).
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Important Point: When you directly pay medical expenses for a person who is your dependent (meaning you pay over 50% of that person's total support for the year), you can add the expenses you pay for the dependent to your own expenses and claim a deduction for the total to the extent it exceeds 7.5% of your AGI. That rule would have applied to the mother in this case if the daughter had been the mother's dependent. Apparently she was not, so the deduction for the daughter's expenses belonged to the daughter rather than the mother.
3. Real Estate Taxes Paid by Someone Else
The daughter in the 2010 Tax Court decision mentioned above was also allowed to claim an itemized deduction for $5,508 of local real estate taxes that were paid directly to the taxing authorities by her mother. Once again, the facts of the case demonstrated that the mother intended the payments to be gifts. Therefore, the Tax Court characterized the transactions as gifts from the mother to the daughter followed by payment of the taxes by the daughter with the gifted funds. So the daughter was allowed to deduct the taxes that were actually paid by the mother. Source: Judith Lang, TC Memo 2010-286 (2010).
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4. Home Mortgage Points Paid by Someone Else
Assuming you itemize deductions, you can write off points (including loan origination fees) that you pay to take out a mortgage to buy your principal residence. Surprisingly enough, you can also deduct mortgage points paid by the seller on your behalf to sweeten the deal. In fact, the IRS actually requires you to claim the deduction. If this happened to you last year, don't ask questions! Just follow the government's directions and claim a deduction for the seller-paid points on Line 10 or 12 of your Schedule A. Source: IRS Revenue Procedure 94-27.
5. Fees to Charge Taxes to Your Credit Card
Surprisingly enough, the IRS says you can treat credit card convenience fees paid to charge personal income tax bills (including estimated tax payments) as miscellaneous itemized deduction items reported on Line 23 of your Schedule A. Source: IRS instructions to Schedule A. This favorable rule apparently applies to fees to charge both federal and state income taxes. However, you only get a write-off to the extent your total miscellaneous itemized deductions exceed 2% of AGI (other miscellaneous expenses include unreimbursed employee business expenses, union dues, job hunting expenses, fees for tax preparation and advice, and investment expenses). Fill out lines 21-27 of Schedule A to see if you can benefit from claiming miscellaneous itemized deductions.
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