The IRS Deductions Blog

Archive for January, 2009

Question: For health insurance plan, is it good to have a Low Deductible, but a higher coinsurance?

I’m looking at a health insurance plan with a premium of $76 per month. The deductible is $500 and out-of-pocket maximum is $2,500, which doesn’t include deductible. Coinsurance is 30% after deductible. I get the first 3 doctor visits for $30 co-payment and then pay 30% after deductible. Does this plan sound okay? I normally see a doctor once a year. Thanks!

Answer: Generally, your deductible should be no higher than whatever you would feel comfortable writing a check for — whether out of current earnings, or cash specially set aside to cover your deductible at need. The higher your deductible, the lower your premiums. The plan you described may qualify you to open a HSA (health savings account) which would let you set aside pre-tax dollars for your health care — a good option for those who rarely seek treatment.

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Time to make financial resolutions

Like many people, you may make some New Year’s resolutions. Perhaps you’ve promised yourself that you’ll visit the gym more often or learn a new language or reconnect with a long-lost friend. All of these are worthy goals, of course, and if you achieve them, you may add new dimensions to your life. But if you want to accomplish other major milestones you may have envisioned — a new home, college …

Tips for Open Enrollment

According to the IRS, if “Bob” can prove that he would face serious financial hardship by paying his taxes, or is unable to pay them right away, he can apply for a monthly installment plan. The IRS also says in form 9465 that under certain circumstances, the IRS may lower the taxes it charged him.

Before Bob fills out the form, however, the IRS warns him that it may be better to take out a loan or use available credit on a credit card because there is a fee required to submit the form. There is a $105 fee ($52 if payment is made by electronic funds withdrawal) or a reduced $43 fee if Bob’s income is below a certain level. The IRS also cautions him not to use the form if he can make the payment in 120 days or if he wants an on-line payment agreement.

If Bob can make the payments in 120 days, he needs to call 1-800-829-1040 and request to make the full payment in 120 days. This way he can avoid the application fee of form 9465. He should also call this number if he is in a bankruptcy, or he has filed–and the IRS has accepted–an offer-in-compromise.

If Bob wants to apply for a payment plan on line, he needs to go to the IRS website (link below), use the pull-down menu under “I need to…” and select “Set Up a Payment Plan”. This will liberate him from filing form 9465.

The Installment Agreement As Laid Out In Form 9465

If Bob completes form 9465 and files it, the IRS will probably notify him of the results in 30 days–unless the request is for tax due on a return filed after March 31–then it might take longer. In the event that the IRS approves the request, Bob will receive a notice detailing the terms of the agreement and requesting the fee due for the submission of his request. The IRS will let Bob know if he qualifies for the reduced fee, but he can request the reduced fee using form 13844 if the IRS does not say he qualifies.

The IRS will charge Bob interest, and may charge him a late payment penalty on any tax not paid by its due date, even if his request to pay in installments is granted. Interest and any applicable payments will be charged until the balance is paid in full. In order to limit Interest and penalty charges, the IRS recommends that Bob files his return on time and pays as much of the tax as possible with his return (or notice).

The IRS says that by approving Bob’s request they agree to let him pay the tax he owes in monthly installments, instead of immediately paying the amount in full. All payments received will be applied to his account in the best interests of the United States. In return, Bob agrees to make his monthly payments on time, and to meet all future tax liabilities.This means that he must have enough withholdings or estimated tax payments so that future tax liabilities are paid in full when he timely files his returns. Bob’s request will be denied if he has not filed all his tax returns. Furthermore, any future refunds will be deducted from the amount Bob owes, and that if a refund is applied to his balance, he is still required to make his monthly installation payments

Guaranteed Installment Agreement

Bob’s submission is guaranteed to be accepted if all the following conditions are met:

The Payments

Bob can make his payments by cash, money order, credit card, or one of the other payments shown below. The application fee is dependent on what type of payments Bob wants to make. The application fee submitted with his request is a one-time event:

After the IRS receives each payment, they will sent Bob a notice confirming it, and showing the remaining debt. If Bob chooses to have the funds automatically withdrawn from his checking account, his bank statement will serve as his notice. He will not receive an additional one from the IRS. The IRS will also send Bob an annual statement showing the amount he owed at the beginning of the year, the amount he owed at the end of the year, and a record of all the payments made during the year.

A Word of Caution

If Bob doesn’t make his payments on time, or doesn’t pay what he owes on a return filed later, he will be in default on his agreement. The IRS may then proceed to take enforcement actions such as the filing of a Notice of Federal Tax Lien, or an IRS Levy Action to collect the entire amount he owes.

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A bigger tax break for college costs

Paying for college? You may be able to claim a big tax break, even if you’ve never before qualified.

Corzine to the Middle Class: Drop Dead

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New deductions, credits good for some taxpayers

When taxpayers sit down to file their 2009 returns, they will find plenty new — some the result of adjusting for inflation, and others changes passed by Congress last year to try to bring the country out of recession.

Question: Can i sell a home which is on home loan before 5 years which was claimed for tax deduction?

I am planning to sell one of my flat bought in 2004 on home loan. I have claimed for tax deduction for 4 years already. I have a seen a clause in the yearly bank statement that i will not be entitled for tax saving on home loan if flat is sold before 5 years. Is it true? Please provide more information on this clause.

Answer: yes ,you are right ,rebate/deduction will not be available if house is sold within 5 years .this is as per section 80c Current and 88old.
but interest claimed on house loan will not have any effect at all.but principal claimed as deduction/rebate will be add back for all the year if house is sold before the 5th year.relevent clause is given hereunder.

“(5) Where, in any previous year, an assessee

(i) terminates his contract of insurance referred to in clause (i) of sub-section (2), by notice to that effect or where the contract ceases to be in force by reason of failure to pay any premium, by not reviving contract of insurance,

(a) in case of any single premium policy, within two years after the date of commencement of insurance; or

(b) in any other case, before premiums have been paid for two years; or

(ii) terminates his participation in any unit-linked insurance plan referred to in clause (x) or clause (xi) of sub-section (2), by notice to that effect or where he ceases to participate by reason of failure to pay any contribution, by not reviving his participation, before contributions in respect of such participation have been paid for five years; or

(iii) transfers the house property referred to in clause (xviii) of sub-section (2) before the expiry of five years from the end of the financial year in which possession of such property is obtained by him, or receives back, whether by way of refund or otherwise, any sum specified in that clause,

then,

(a) no deduction shall be allowed to the assessee under sub-section (1) with reference to any of the sums, referred to in clauses (i), (x), (xi) and (xviii) of sub-section (2), paid in such previous year; and

(b) the aggregate amount of the deductions of income so allowed in respect of the previous year or years preceding such previous year, shall be deemed to be the income of the assessee of such previous year and shall be liable to tax in the assessment year relevant to such previous year.”

http://simpletaxindia.blogspot.com/

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IRS Cuts Mileage Deduction For 2010

(Washington, DC) — As the new year is upon us, the Internal Revenue Service has cut a key tax deduction for people who use their vehicles a lot for work.

Question: Can I carry over interest paid on mortgages for tax deduction?

Can I carry over from 2005 to 2006 interest paid on mortgages for tax deduction? Also, are there any other deductions that can be carried over besides charitable contributions?

Thanks.

Answer: No, in fact you cannot. If the issue is that you did not claim all of your mortgage interest in 2005, then you need to file an amended 2005 tax return which includes the mortgage interest you forgot to deduct. This will get you a 2005 refund based on this additional amount. You then file your 2006 return with 2006 mortgage interest only from 2006.

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Why Johnny can’t be deducted

As a foster mom, I clothed, fed and cared for a child in need. But it’s the birth mother who gets the tax break