Tax Court Allows Medical Deduction For Home Health Care By Non-Professionals

 Patricio A. Suarez  of Anderson Kill & Olick, PC writes:

In the recent case, Estate of Baral v. Commissioner (137 T.C. No. 1), the United States Tax Court held that payments of almost $50,000 made to an elderly woman's caregivers qualified as deductible medical expenses under the Internal Revenue Code because the expenses were not compensated for by insurance and the services constituted qualified long-term care services as defined in section 7702B(c) of the Code.

The background of the case was as follows: Lillian Baral, now deceased, was diagnosed by her physician as suffering from dementia. The physician determined that she required round-the-clock assistance and supervision for medical reasons. Ms. Baral's brother, acting under a power of attorney, hired two unlicensed caregivers to provide 24-hour care, and the cost of that care was deducted as a medical expense on Ms. Baral's income tax return. The IRS disputed the deduction but was ultimately overruled by the Tax Court, which held the deduction to be a legitimate medical expense.

Click to read more ...

Tax Return Review

Worried about red flags? Want a second opinion? Let Kenneth Hoffman review the return you’ve prepared.

If you would like to purchase my Tax Review Package, the first thing that you need to do is to contact me or call me at 954.591.8290 to schedule your Tax Return Review.

Once your Tax Return Review is scheduled, you will confirm and reserve this date by paying for the package.

Details about the Tax Return Review are:

• A pre-review phone call with Kenneth Hoffman to discuss your general tax situation and to identify any areas of concern.
• A copy of my Tax Info Checklist to assist you in compiling your tax documents.
• Review of your federal and state tax return for possible mistakes and missed opportunities.
• A written list of recommend changes.
• A post-review phone call with Kenneth Hoffman to discuss the recommended changes. 

The fee for the Tax Review Package is $95, payable in advance.

After consulting with Kenneth Hoffman, if you would like him to professionally prepare your tax return, the Tax Review Fee will be credited toward the tax preparation fee.

 

"Like" This

America's economy continues to sputter. But stocks are picking up steam and flirting with four-year highs. We're even seeing new "dot-coms" hitting the market. Last May, the social networking site LinkedIn went public at $45 per share, then leaped to $94.25 in its first day of trading. Internet coupon vendor Groupon opened in November at $20 per share, then jumped 31% on its first day of trading. And earlier this month, Facebook filed registration papers with the Securities and Exchange Commission for what may be the hottest IPO since Google.

Companies typically go public to raise money to expand. But Facebook doesn't really need cash from an IPO. The company made nearly $4 billion in advertising revenue in 2011. So why go public?

Well, companies also go public to let founders and early investors cash out. Mark Zuckerberg, Facebook's 27-year-old founder, is already a "paper" billionaire, ranked #14 on the Forbes 400 list of richest Americans. (Not many entreprenuers find themselves richer than Scrooge McDuck while still at an age that they watch Scrooge McDuck.) But Facebook's IPO will give Zuckerberg and fellow early investors liquidity, converting paper wealth into cash for the houses, charitable gifts, and other spending that new dot-com millionaires historically indulge in.

The IPO will also stick Zuckerberg with a historically large tax bill. (You knew that was coming, right?) In fact, one of the big reasons the company is going public in the first place is give Zuckerberg a way to pay taxes when he exercises options to buy even more stock.

Here's how it works. For tax purposes, the value of most stock options is treated as compensation and fixed the day you exercise them -- whether you actually sell them or not. Let's say you pay $5 to exercise a share of your employer's stock, on a day when that stock is worth $25. Your company gets a deduction for that $20 per share, even though there's no cash outlay. That's great for the company. But at the same time, you'll owe immediate tax on $20 of income, even if you hold the stock in hope of future appreciation. (If the stock tanks before you actually sell, you still owe tax on that gain.) That may notbe so great for you!

Zuckerberg currently owns 414 million shares of Facebook. He also has options to buy another 120 million shares for -- get this -- just six cents each. Zuckerberg has announced plans to exercise those options and sell enough shares to cover his taxes. We don't know yet what Facebook shares will trade for. However, private-market trades have valued shares at $40 each. If Zuckerberg exercises all 120 million options when shares are valued at that price, his taxable gain will be nearly $5 billion. He'll owe 35% to the IRS, plus 10.3% to the state of California, for a total tax bill of over $2 billion. That's right, billion with a "b." Can you imagine signing a return with a billion-dollar tax bill? How about signing a checkfor that much -- payable to the IRS!

The important thing to realize here is that Zuckerberg's tax bill came as no surprise. It's actually the result of careful planning. Remember, Zuckerberg's pain is Facebook's gain. The strategy will probably give Facebook enough deductions to wipe out the entire tax on its 2011 profit, plus refunds from 2009 and 2010, plus even more to carry forward.

Think about that the next time you click the "Like" button on your computer. And remember, we're here to bring the same sort of smart tax planning to yourbusiness.

If you have any questions about this topic, tax law changes, business tips, or how to become a client, please call us at 954-591-8290 or use our Contact form. 

Minister Housing Allowance Update

Driscoll was an ordained minister and worked for Phil Driscoll Ministries, Inc.  The ministry paid Driscoll a housing allowance to maintain both his principal residence and his lake house.  The IRS denied the housing allowance allocable to the second house and issued a notice of deficiency with regards to the amounts that the IRS determined was improperly excluded from Driscoll’s income. 

Driscoll petitioned the Tax Court, which held that Driscoll could exclude from income amounts used to provide his second home.  The Tax Court reasoned that singular terms in the Code also include their plural forms, and, therefore, the language in section 107 of the Code referring to “a home” could include more than one home. 

The 11th Circuit held that the “singular-to-plural” provision should only apply if the context of section 107(2) of the Internal Revenue Code supports such an application.  The 11th Circuit looked at the definitions of the word “home” and concluded that the word “has decidedly singular connotations.”  In support of the court’s decision, the legislative history of section 107(2) was examined and words such as “the” or “a” always preceded the word “home”; therefore, the court held that “home” was always intended to mean one home.

If you have any questions about this topic, tax law changes, business tips, or how to become a client, please call us at 954-591-8290 or use our Contact form. 

Higher Taxes on the Way

That's what the future holds if Congress continues on its current course.

If Congress can't agree on a way to extend the payroll tax cut, a relatively simple issue, there's little hope of them coming to gripes with an extension of the Bush tax cuts. That's going to be far more difficult.

But higher taxes won't be the end of the consequences. Those higher taxes are almost sure to put a damper on economic activity. We might be treated to the worst of both worlds--higher taxes and a second recession. While it's still early, recent history does not bode well for a compromise before the end of the year.

Contact us TODAY for your tax plan.

If you have any questions about this topic, tax law changes, business tips, or how to become a client, please call us at 954-591-8290 or use our Contact form.