It is very common to dislike paying medical bills even if you have very good insurance and a low deductible. One of the very bright sides of big medical bills is the chance you get to claim your medical expenditure as a deduction on the federal tax return. If your medical bills are more than 7.5% of your total tax years * the adjusted gross income (AGI) then it is quite feasible to itemize your deductions. The deductions on medical expenses are applicable for self, your spouse and for the medical expenditure of your dependents as well.
In case, your medical bills are more than 7.5% of the income you obtain you must follow the below-mentioned rules for maximization of your tax refund.
- Medical bills are not just ‘Medical’
The IRS would permit deductions on tax for vision and for dental care as well and also for the medical expenses too. This would imply that it is feasible to deduct the expenses incurred in the eye tests, dental-related visits, braces, contact lenses, glasses, root canal, etc.
Some other expenses which are covered under the category of medical expense deduction are psychological treatment, surgeries, medical devices such as hearing aids, medicines which have been prescribed, preventative care, etc.
Even the cost involved in your monthly payments of health insurance can be deducted if taxes have not been deducted by plans provided by the employer. The deduction for medical expenses would include the bills that have been incurred for yourself, your spouse and your dependents.
You must have a complete idea about what is not tax-deductible before you have filed the tax returns. Any expenses which have been reimbursed either by the insurance provider or by your employer cannot be claimed as tax deductions. Moreover, if you are using a pre-payment plan for your medical expenses or are using a medical reimbursement plan then those expenses cannot be claimed as deductions. Some other non-deductible items would include your every-day supplies like toothpaste, soap, vitamins, etc.
- Bill payment
Medical expenses can be deductible only if they are paid in the tax year in which you are filing the tax returns. Medical expenses can be claimed from the previous year or from any other future years. If a credit card has been used for the payment of medical bills in a tax year then it would be counted as being paid in a year and would be deductible as well.
- Medical expenses can be deducted if your tax deductions are itemized
If you wish to receive the benefits obtained from the deductions obtained from medical expenses you must qualify for itemizing your deductions obtained on your taxes. Some of your itemized deductions such as property tax, State Income tax, home mortgage interest, etc. along with those medical expenses which are deductible need to be more than the Standard Deduction for the year 2020. In case you are self-employed, you would be able to deduct your premium for health insurance even if you are not able to itemize your deductions.
- Track miles
You can track the medical mileage for the year 2020 and it is 17 cents for each mile. There can be travels related to the prescription pick up, emergency visits, appointments for the dentist and other medical check-up and follow up appointments.
Hence, if you have had medical expenditure during a particular tax year it would be completely worth it by maximizing your deductions and opting for itemized deductions. This would be helpful mainly when your itemized deductions are more than your standard deduction.
- Green Card Test
- Substantial Presence Test
Penalties highlight for tax returns filed after 14-Sep
The IRS has very recently urged the US citizens to act immediately if they have taxes due and have not filed their tax returns for 2019. After 14th September 2020, the IRS would be imposing huge penalties on those who owe taxes and are not updated concerning their tax returns.
The deadline for tax filing was 15th July 2020 due to the adverse consequences caused by the pandemic COVID-19. Several taxpayers have submitted their request for an extension to file their tax returns would not be paying any penalties until 15th October 2020. However, it is an essential point to keep in mind that this extended period is for the filing of tax returns only and not for the payment of tax. Any tax which is due after the 15th July 2020 deadline would be considered as a failure to pay penalty and interest would be charged on it.
There are still many taxpayers who did not make an extension request but owe taxes; will be facing the failure to file the tax returns and also the failure to pay the penalties. It is advisable for these taxpayers to immediately file their tax returns and pay as much as they can before huge penalties are levied from 14th September 2020 onwards.
- The penalty charged for non-filing of the tax returns by the specified date or by the extended date even is 5% of the tax which is unpaid for each month.
- It can also be charged for that part of the month for which there has been a delay in the tax return filing at the rate of 25% of the tax unpaid.
- If there has been a delay of 60 days in the filing of tax returns, a minimum penalty is charged.
- In case, there has been no filing of tax returns even after 60 days; the minimum penalty charged is either $435 or 100% of the unpaid tax whichever is lower.
- This year, this period of 60 days starts after 14th September 2020. After 14th September 2020 heavy interest or penalties would be charged on the tax defaulters.
- Apart from the penalties, interest would also be charged for any tax which has not been paid by the tax payment due date of 15th July 2020.
- However, if there is a refund due for a taxpayer no penalty would be charged for the filing of tax returns late by the taxpayer.
Probabilities of Penalty Relief may be available
- If there has been no assessment for any penalties for taxpayers for the past three years would be eligible for an abatement of penalties.
- If a taxpayer is not eligible for the relief of his first-time penalty relief, still he can qualify for penalty relief if the cause for non-filing of tax returns or non-payment of tax was due to some reasonable reason.
- The different types of penalty relief which are offered by the IRS are
The reasonable causes for failing to file tax returns are:-
- Natural disasters, fire, or any other disturbances
- Inability in obtaining the necessary records
- Death, any serious illness, unavoidable absence of the taxpayer or his immediate family member
- Other causes which state that despite using all care to meet the tax obligations, the taxpayer has not been able to do so.
Administrative Waiver and Abatement of a first-time penalty
A taxpayer would be eligible to qualify for the administrative waiver from the penalties due to filing of tax returns late or for non-payment of taxes on time under the below circumstances:-
- The taxpayer did not have to file tax returns previously or he has no penalty for the previous three tax years which are before the one in which penalties have been received.
- If the taxpayer has paid or rather has made the arrangement for making the payment all due taxes.
- If the taxpayer has filed the current tax returns or has filed an extension in the time to file a tax return.
- A taxpayer can also be eligible for an Administrative waiver if he has received incorrect oral advice related to tax returns and payment from the IRS.
A taxpayer would qualify for a Statutory Exception if he has received incorrect written advice from the IRS. The taxpayer would have to submit various evidence to prove this such as
- The written request made for advice
- The erroneous written advice which was sent by the IRS
- Report on any tax adjustments which have been made due to the erroneous advice obtained from the IRS.
The taxpayer can file Form 843, Claim for Refund and Request for Abatement to request for penalty relief in case of incorrect advice obtained by the IRS.
Get extra time for the tax payment
If a taxpayer owes tax but is not able to make the full payment, then he can opt for payment of taxes by a payment plan which includes an Installment Agreement. A qualified taxpayer or an authorized representative is eligible to apply for a payment plan to make payments of the taxes over time. A taxpayer who is unable to pay the full amount must contact the IRS to know about the options available.
The IRS might provide options like short-term extension, and installment agreement or offer in compromise can be offered, etc.
Hence, taxpayers must be alert and file their tax returns before the deadline if they have not done so to avoid huge penalties.
SBA Debt Relief for small business owners
The pandemic COVID-19 has created a lot of financial problems for people across the country. People from every profession are facing several economic issues due to the coronavirus and are continuously struggling to lower the impact of the pandemic on the profession/work-related front. However, if you are a small business owner then your business must have been impacted badly by the spread of the COVID-19. So, one of the ways by which you can be able to obtain some financial aid during these challenging times is through the US Small Business Administration (SBA) Debt Relief Program.
SBA Debt Relief Program
The SBA is a part of the $2 trillion packages offered by the US Government under the provisions of the CARES (Coronavirus Aid, Relief, and Economic Security) Act. It can be described as a debt-payment assistance program that would help in providing immediate relief to the various small businesses in the United States with the help of Small Business Administration Loans.
By the SBA Debt Relief Program, financial assistance can be provided to small business owners by making a payment of principal, interest, and any other fees which the borrowers owe for the current 7(a) loans, 504 loans, and other Microloans as well.
How to participate in the SBA Debt Relief Program?
If a business is eligible to participate in the SBA Debt Relief Program there is no need for any application. Participation is automatic. The SBA has given instructions to the different lenders for not collecting any loan amount during the debt relief period. The SBA has said that it would make the loan payments for these borrowers. According to the provisions of the CARES Act, the SBA should start making the payments within a month of the date on which the first payment of the loan taken needs to be done.
- In case the loan payment of a borrower was to be collected after 27th March 2020, then the lenders were provided with the instruction to inform the borrower about having the option of loan payment returned or applying the payment for even more reduction in the loan balance after the payment has been made by the SBA.
- If the loans are not deferred then the SBA can start making the payments on the due date of the next payment and will be making the payments for 6 months.
- For those loans which are on deferment, the SBA will be making the payments with the immediate next payments that are due after the end of the deferment period. The SBA will be making the payments for the upcoming 6 months.
- In the case of those loans which have been made after 27th March 2020 and have been fully disbursed before 27th September 2020, the SBA will make the payments. The SBA will start with the first payment which is due and would do the payments for the upcoming 6 months.
Can the SBA Debt relief program be applied to PPP and EIDL loans?
- The Debt Relief Program by the SBA does not apply to the Paycheck Protection Program (PPP) loans to or to the Economic Injury Disaster Loan (EIDL).
- EDILs which have the status of regular servicing which means when the loan is in a closed state with accordance to the Terms and Conditions of the loan authorization, the payment for the final disbursement has been made and the SBA guarantee fee has also been paid as of 1st March 2020, automatic deferments would be provided by the SBA through 31st December 2020.
- However, interests would keep on accruing during this period.
Can you get a PPP loan even if you have received the SBA debt relief?
Yes, even if you have received the SBA Debt Relief you can fill an application for obtaining the PPP loan. You must keep in mind that the procedure for obtaining a PPP loan is different from that of the process for obtaining the SBA Debt Relief.
So, the SBA Debt Relief is an excellent initiative by the Government to alleviate the distress caused to the economic condition of the small businesses within the country due to the pandemic COVID-19. The borrowers might have several queries related to the SBA debt relief program and must contact their lenders for this purpose.
Tax Implications for buying/selling stocks
The pandemic COVID-19 has created an adverse impact on the economy of the entire world. Millions and millions of Americans have taken the advantage of the low stock prices and purchased many stocks. Many have sold their stocks and withholdings due to market fluctuations and economic causes too.
However, if you have sold or even purchased stocks during this pandemic stricken period you must be willing to understand various tax implications on this. Moreover, you might also be inquisitive to understand the differences between long term and short term capital gains.
So, let us talk about some of the major areas and topics associated with the tax implications on the stock market.
Taxes levied on the Capital Gains
On selling of the shares of winning stock, you would have created Capital Gains. If you are selling your shares during a downturn, you must keep in mind that you might obtain again depending on the duration for which you have held the stock.
Suppose, you have sold a stock at a rate of $80 per share, which is d downturn from the $100 price of each share. You might think that this stock has lost its value and is apt for sale; however, if you would have purchased the stock before 10 years at the cost of $20 for each share you will have a $60 gain and not a $20 loss on each share.
So, in case you had 100 shares of that stock your cost price at the $2000. By selling the shares at $8000, you would be able to recognise a long-term capital gain which would be at around $6000.
In case, you are in the tax rate bracket of 15% long term capital gains then you would have to pay federal taxes of around $900 when the stocks are being sold.
Long Term Capital Gain and Short Term Capital Gain
In case you have been holding a security for a period of more than 1 year, then on the sale of that security, you will be eligible to obtain long term capital gains at the tax rates of 0%, 15%, or 20% based on the income.
- However, if you obtain the same gain from the sale of stocks which have been held for one year or even less then the short-term capital gains would be taxed at the same rate as that of ordinary income i.e. 10%, 12%, 22%,24%, 32%, 35% or even 37%.
- If you are married and you have a combined taxable income of $150, 0000 along with your spouse. When this is your income level, you can have a long term capital gains tax rate at 15% and your Federal Income Tax rate would be 22%.
- Then the capital gain of $6000 which you have obtained by selling security which you have held for one year or less would be $1320 and not $900.
Capital losses can be offset with Capital Gains
You should not feel disheartened if you have sold the losing stock and have faced capital losses. You can offset your capital losses with your capital gains. This procedure is known as Tax harvesting where investors realize their capital losses and offset their capital gains.
Suppose, you had a capital gain of $10000 from the sale of a particular stock whereas, you experienced a capital loss of around $8000 on the sale of another stock. So, in this case, you can deduct the capital losses from capital gains. You would obtain $2000 long-term capital gain thus, reducing your capital gains and taxes.
For instance, if your capital losses are greater than your capital gains, then you can deduct up to $3000 in a year in the form of allowable capital losses against the non-investment income. This would help lower your overall taxable income.
However, in the case of 2020 if there has been a loss of $8000 by the sale of stock then there are no gains offset it against. You can deduct $3000out of that loss against the non-investment income. The remaining $5000 can be easily carried forward into the subsequent years. This can be either deducted against the future capital gains or can also be written off against the non-investment income. This can be done at the rate of $3000 in a year until the complete loss has been deducted.
Net Investment Income Tax
This is an additional tax that you might face depending on your income. The IRS had started implementing the Net Investment Income Tax for partial funding of the Affordable Care Act.
By this, an additional tax of 3.8% would be imposed on your investment income if the thresholds are exceeded by your Modified Adjusted Gross Income.
These thresholds can be listed as
- Married jointly- $250,000
- Married but filing tax returns separately – $125,000
- Single or the Head of a household – $200,000
- You re a qualifying widow/widower along with a child – $250,000
The Net Investment Income Tax applies not only to the income from capital gains but also the investment income which has been derived from dividends, interest, rental income, royalty income, and also non-qualified annuity income.
So, this information would be helpful for you in understanding the various tax implications imposed on the purchase or sale of stocks.