Taxes For People With A Serious Health Condition
Knowledge truly is power. In the case of taxes, knowledge is also a money saver.
It is not prudent to think that you do not have to file a tax return because your life may be shortened. At least one person survives every illness. Even if you die, your estate will still owe the money. Interest and penalties can add up to a great deal more than the original tax owed.
Each of the following areas are particularly relevant to people living after a diagnosis of a serious health condition. Information about each subject is contained in the linked article.
- Medical expenses are amounts paid for the diagnosis, cure, mitigation (lessening the intensity of a medical condition), treatment, or prevention of disease, and for treatments affecting any part of function of the body, where the expenses must be primarily to alleviate or prevent a physical or mental defect or illness. Medical expenses include items you may not think of such as the cost of transportation to and from a doctor's appointment, your share of premiums you pay for insurance that covers the expenses of medical care, and home health aide to the extent he or she does nursing type duties. Deductible medical expenses include expenses incurred for yourself, your spouse, children and any other dependent. To learn what is and is not considered to be a medical deduction, click here.
- If you borrow money to pay for your medical expenses, interest is not deductible because it is considered to be interest on a personal loan.
If you have to make changes to your home because of your health condition, the expense is deductible from your taxes to the extent that it does not increase the value of your home. For instance, if you spend $5,000 to install a wheel chair ramp, and it increases the value of your home by $1,000, you can deduct $4,000 as a medical expense ($5,000 cost minus $1,000 increase in value = $4,000)
- Giving to a disease specific charitable organization helps you as well other people with a similar condition. To learn how, click here.
- Consider going through your home and look for items that you no longer want or need but that are still usable. You can donate them and get a tax deduction (which means additional money in your pocket). Some items, such as clothing and children's items, may be of use to hospitals or your local community service organization.
- Expenses incurred at your workplace to allow you to do your job are fully deductible. Such expenses are not considered to be medical expenses and are therefore not subject to the 10% medical expense threshold.
- Rules concerning deductible expenses if you work at home are not as strict as they used to be. Reasonable estimates are permitted to divide house related expenses between work and personal.
Social Security Benefits
To learn about taxability of Social Security benefits, please see: Taxability of Social Security benefits
Sale Of A Life Insurance Policy
Taxability of a sale of a life insurance policy depends on whether the sale is what is known as a Viatical Settlement or a Senior (Life) Settlement. For information, click here.
A serious health condition does not exempt you from paying estimated taxes. For more information, click here.
If You Owe Back Taxes, and wonder how your health condition affects your obligation, click here.
Audits For information about:
- How to avoid an audit, click here.
- What to do if you are audited, including using your health condition when you need understanding from the IRS, click here.
Table Of Contents
- Medical Deductions
- Tax Audits
- Help With Taxes
- If keeping receipts is difficult for you, consider using Shoeboxed Receipt Tracker . You take a photograph of your receipts with your smart phone. The app keeps track and categorizes receipts for you.
- If you file your return late, or are late paying the tax due, the IRS will allow a one-time waiver of the late payment and late filing penalties if you have been tax compliant for the last three years. The program is known as the First-Time Abate Program. To get the waiver, you must request it. For more information, speak with your tax preparer or call the IRS atl 800.829.1040. If you do not qualify for the program, the IRS may still waive the penalty if the delay was because your illness incapacitated you. It will be difficult to argue you were incapacitated if you attend to your other financial affairs during the period in question.
- Although the IRS is the agency that will enforce the penalty on people who do not have health insurance after 2013, the Service will not have access to taxpayer medical records. Insurance companies and self-insured employers will send a report of taxpayers' coverage to the IRS. No medical history will be listed. The Service will compare the lists to their list of taxpayers to locate uncovered individuals.