Medical and Dental Deductions on your 2010 Tax Return

If you itemize your deductions on Form 1040, Schedule A, you maybe able to deduct expenses you paid in 2010 for medical care – including dental – for yourself, your spouse, and your dependents. Here are six things the IRS wants you to know about medical and dental expenses and other benefits.

1. You may deduct only the amount by which your total medical care expenses for the year exceed 7.5 percent of your adjusted gross income. You do this calculation on Form 1040, Schedule A in computing the amount deductible.
2. You can only include the medical expenses you paid during the year. Your total medical expenses for the year must be reduced by any reimbursement. It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.
3. You may include qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a multiple support agreement. If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child. You can also deduct medical expenses you paid for someone who would have qualified as your dependent except that the person didn't meet the gross income or joint return test.
4. A deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription except for insulin.
5. You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance may be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees.
6. Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses.

Earned Income Tax Credit - Financial Boost for those earning less than $48,362

The Earned Income Tax Credit is a financial boost for workers earning $48,362 or less a year. Four of five eligible taxpayers filed for and received their EITC last year. The IRS wants you to get what you earned also, if you are eligible.

Here are the top 10 things the IRS wants you to know about this valuable credit, which has been making the lives of working people a little easier for 36 years.

1. As your financial, marital or parental situations change from year to year, you should review the EITC eligibility rules to determine whether you qualify. Just because you didn’t qualify last year, doesn’t mean you won’t this year.
2. If you qualify, the credit could be worth up to $5,666. EITC not only reduces the federal tax you owe, but could result in a refund. The amount of your EITC is based on your earned income and whether or not there are qualifying children in your household. The average credit was around $2,100 last year.
3. If you eligible for EITC, you must file a federal income tax return and specifically claim the credit – even if you are not otherwise required to file.Remember to include Schedule EIC, Earned Income Credit when you file your Form 1040 or, if you file Form 1040A, use and retain the EIC worksheet.
4. You do not qualify for EITC if your filing status is Married Filing Separately.
5. You must have a valid Social Security Number. You, your spouse – if filing a joint return – and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
6. You must have earned income. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.
7. Married couples and single people without children mayqualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
8. Special rules apply to members of the U.S. Armed Forces in combat zones.  Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make this election, the combat pay remains nontaxable.
9. It’s easy to determine whether you qualify. The EITC Assistant, an interactive tool available on the IRS website, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and estimate the amount of your EITC.
10. Free help is available at Volunteer Income Tax Assistance sites and IRS Taxpayer Assistance Centers to help you prepare and claim your EITC. If you are preparing your taxes electronically, the software program you use will figure the credit for you. To find a VITA site or TAC near you, visithttp://www.irs.gov.

For more information about the EITC, see IRS Publication 596, Earned Income Credit. This publication – available in both English and Spanish – can be downloaded from the IRS website or ordered by calling 800-TAX-FORM (800-829-3676).

Share your Biggest Budget Blowout and Win a $20 iTunes Card

Do you have a budget? 

Not just one in your head that means you can't spend more than $100 at the mall this weekend...I mean, a REAL budget, where you actually keep track of what your monthly fixed outgoings are, your monthly income, and know and understand what your surplus $$$ is - and where you're spending it.

StatementChecker.com is launching soon, and we have a great Budet Tool that we can't wait to show y'all. 

Whats your biggest budget blowout ever? Share your stories as we ramp up to launch, and one lucky Facebooker will win a $20 iTunes Card courtesy of StatementChecker.com.  


How to Enter: 
Its easy...we've made lots of ways to enter so its a snap! 


(1)  Email your story
(2) Tweeting your biggest budget blowout story to #statementcheck on Twitter 
(3) Log into Facebook, and post your story to our Discussion on our Facebook Fan Page.

Tax Tips for Self-employed Individuals

If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself self-employed and you would file IRS Schedule C, Profit or Loss From Business or Schedule C-EZ, Net Profit From Business with your Form 1040.

Here are six things the IRS wants you to know about self-employment:

1. Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
2. If you are self-employed you generally have to pay Self-employment Tax. Self-employment tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. You figure SE tax yourself using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.
3. If you are self-employed you generally have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you don’t make quarterly payments you may be penalized for underpayment at the end of the tax year.
4. You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
5. To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

Four Tax Tips about Tip Income

If you work in an occupation where tips are part of your total compensation, you need to be aware of several facts relating to your federal income taxes. Here are four things the IRS wants you to know about tip income:

1. Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to tax.
2. Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.
3. Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income

Prenups and Postnups - Do YOU need one to protect YOUR personal finances?

Over the past five years, there has been an increase in the number of betrothed Americans seeking Prenups before they walk down the isle and say “I do”.  But there is also a rise in the numbers of married couples seeking a postnup agreement after the wedding has already taken place,  to protect them – and their investments in the event of the failure of the marriage.

If you thought Prenups were just for the rich and famous, think again.  People of all income levels get pre-nups (and postnups), and for a variety of reasons.  The obvious reason is divorce, but some people get a prenup to protect themselves against their partners existing debt or financial problems so they are not financially responsible for their spouses prior debts if the marriage ends, and some just want an agreement to protect their assets.  However, there are other reasons to get prenups that may not include the finances of either party.  Prenups and indeed Postnups  can cover arrangements concerning children, pets, and even how to handle personal affairs in the event of the death of either partner. 

Once you’ve decided to get a prenup or postnup agreement, the first thing you both  need to do is itemize all your assets and liabilities.  It’s important prior to getting married to disclose and discuss your debts with each other, because if the marriage does end in divorce, one partner may not want the responsibility for student loans or credit card debts that was incurred prior to the marriage.  Your agreement can cover  retirement and investment funds, property and cash.  If there are any sentimental items such as antiques, jewelery, furniture – or even pets, these should also be included. 

Your next step is to  visit a Family Law Attorney.  Regardless of how simple and straight forward you may think your situation  is, in order for it to be legally valid and stand up in court, it needs to be done properly.  Simply drafting your own prenup or postnup agreement and getting it notarized is not enough.   You should also make sure that your partner has their own Attorney review the agreement prior to signing so there is no dispute after the fact on whether the agreement was understood.  

For Prenups, the agreement should be completed prior to your wedding day, and goes into effect when you are legally divorced.  A postnup is similar to a prenup – only it is executed after the marriage takes place, sometimes years later.

Treasury Dept launches Tax Refund Pilot on Pre-Paid Cards

The Treasury Department announced on Thursday the launch of a pilot program, in which 600,000 tax payers with income of less than $35,000 will have the option of  activating a MyAccountCard Visa Prepaid Debit Card, on which their 2010 federal tax refund would be direct deposited.

Deputy Secretary of the Treasury, Neal Wolin said  "This pilot program will provide low- and moderate-income Americans with a low-cost option for faster delivery of their federal tax refund", whilst also relieving the Treasury Department of the high overhead associated with mailing traditional paper check refunds.  

It costs the government around a dollar each time it mails a paper check, and in comparison, direct deposit to a card will only cost the government 10 cents per transaction.  It is expected that the Government can reduce the cost of mailing paper checks by up to $36 Million once the program is fully implemented.

Chinese Drywall Repairs – 2010 Tax Deduction

Many homeowners in the U.S. sustained damages to their homes from contaminated drywall installations between 2001 and 2008.  Commonly known as “Chinese Drywall” damage reported includes blackening or corrosion of copper electrical wiring and copper components of household appliances, as well as the strong odor of sulfer gas.

The IRS has provided a safe harbor method that treats certain damage that resulted from corrosive drywall damage as a casualty loss, and provides a formula for determining the amount of the loss.

Taxpayers who have pending claims, or who intend to file a claim for reimbursement can claim a loss for 75% of the unreimbursed amount paid to repair the damage of a personal residence and household appliances during the tax year.   It should be noted however that taxpayers may have an income or additional deduction in subsequent years when the actual reimbursement is received from their insurance carrier.

Even if you don’t have a pending claim, you can still claim all unreimbursed amounts paid during the 2010 tax year to repair damages, however those who have been fully reimbursed before filing a return for the year the loss was sustained are not entitled to claim an additional loss on their 2010 return.

Tax day extended to April 18th

You get three extra days to file your taxes this year. They'll be due on Monday April 18.

But it's not because of a previously announced processing delay that will prevent people who itemize their taxes from filing before mid- to late February.  Instead, the bonus days come thanks to Emancipation Day, a little-known Washington, D.C., holiday that celebrates the freeing of slaves in the district.

Emancipation Day falls on Saturday April 16, but it is observed in D.C. on Friday April 15. That prompted the IRS to extend the tax filing deadline to April 18 this year. Under the tax code, filing deadlines can't fall on Saturdays, Sundays or holidays.

But don't expect a separate -- or longer -- extension to make up for the IRS's processing delay.

The delay -- caused by Congress waiting until late December to pass new tax policies -- means that the 50 million taxpayers who itemize their taxes on a Schedule A form can't file until February.However, the IRS estimates that less than 9 million taxpayers will end up being impacted by the delay, based on historical filing patterns.

New Years Day Resolutions that your Pocket Book will love

So, its New Years Day and you’ve made (yet again)  a resolution to reduce your spending and get on track financially.  But where do you start?   Well, the obvious (and usual way) is to start a budget, begin cutting down on the luxuries that you  don’t need (or can’t afford)  and find ways to do life’s everyday essentials in a much more economical way.  But how do you do things more economically? Well, it’s easy.  Take a leaf or two from our Grandmothers book, and do things the good old fashioned way – and your savings will start to really amount to something substantial.  Here’s five easy ways to change some of your ‘spending habits’ that will really impact your pocket book – in a good way.

1.      Curb the Fast Food Addiction

In our Grandmothers generation, fast food didn’t exist.  Fast food to them was something that was either quick to prepare (like scrambled eggs on toast) or readymade in a can – like baked beans or soup.  If they didn’t feel like cooking, they made do with a basic meal prepared quickly from their pantry – and didn’t spend $20 at the drive through or on Chinese restaurant delivery.   Not only is it healthier to prepare a ‘fast’ meal at home instead of spending up big on takeaways or drive though food, but you’ll save a lot of money over the course of a year, especially if you’re a fast food regular.

2.      Take care of your own dirty laundry

Our Grandmothers generation also laundered all of the families clothing – there was no dry-cleaning bill each week, just a bit of elbow grease and a commitment of a few hours of her time to get the family laundry done.  Sure, it’s a chore, but not one that you have to commit to on your own.  Make it a family task, and you even get to spend some fun  time together with your spouse – and your kids – as you sort and fold the laundry. 

3.      Don’t be afraid of wearing hand-me-downs or recycling the clothing dollar

There is no shame in wearing hand-me-downs, or in snapping up bargains from the thrift store.  It’s an economical way to clothe yourself – and your family – and also a way to get your own ‘unique’ style happening.  But if hand-me-downs and thrift stores are not your thing, try selling your old clothes that no longer fit or you no longer wear on eBay or at a Yard Sale, and recycle that clothing dollar.  You can shop at your favorite department store afterwards for new clothes totally guilt free, knowing that the money you spent came from the sale of clothes you no longer wore.

4.      Avoid buying Champagne on a Beer Budget

We’ve all heard the saying ‘you can’t buy champagne on a beer budget’.  Well, have you heard that you can’t buy prime rib on a ground beef budget?  “Recession Cooking” is a well known way to keep your grocery bill down, whilst still serving up tasty food to your family each night, and there are loads of websites and books dedicated to this subject to help you on your way.  Most notably is Erin Chase from 5 Dollar Dinners (www.5dollardinners.com), who achieved sensational success with her website, and subsequently her  book, 5Dollar Dinners.  Yes, it’s true.  You can feed your family for $5 per meal.  That’s less than the price of a Big Mac Value Meal for your entire family!

5.      Rethink your subscriptions

It’s the re-occurring monthly expenses that really add up to a big chunk of your income, and it’s a good idea to regularly revisit whether your expenditure is realistic for your current situations.  Phone Plans are usually something that you can tweak to get a better deal and save some money on your bill each month.  Cable TV plans are also another way to cut down on expenditure – do you really watch any shows on those premium channels that are ‘extras’ on your bill each month?  If not, cancel the channel subscription, and your monthly bill will be much more pleasing to the eye. 

With a little common sense, and some personal commitment to cutting costs, you’ll soon be on your way to cashing in on big savings with a little bit of sacrifice.