Start planning now if you’d like to deduct medical expenses

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but only to the extent that they exceed 10% of your adjusted gross income.

Before 2013, the floor was only 7.5% for regular tax purposes. (Taxpayers age 65 and older can still enjoy that 7.5% floor through 2016. The floor for AMT purposes, however, is 10% for all taxpayers, the same as it was before 2013.)

By “bunching” nonurgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the new 10% floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

If it’s looking like you’re close to exceeding the floor this year, consider accelerating controllable expenses into this year. But if you’re far from exceeding it, to the extent possible (without harming your health), you might want to put off medical expenses until next year, in case you have enough expenses in 2014 to exceed the floor.

Have questions about the 10% floor or exactly what expenses are deductible? Ask us!

Will your investment income be subject to the new 3.8% NIIT?

Under the health care act, starting in 2013, taxpayers with modified adjusted gross income (MAGI) over $200,000 per year ($250,000 for joint filers and $125,000 for married filing separately) may owe a new Medicare contribution tax, also referred to as the “net investment income tax” (NIIT). The tax equals 3.8% of the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold.
 
Many of the strategies that can help you save or defer income tax on your investments can also help you avoid or defer NIIT liability. And because the threshold for the NIIT is based on MAGI, strategies that reduce your MAGI (such as making retirement plan contributions) can also help you avoid or reduce NIIT liability.
 
The rules on what is and isn’t included in net investment income are somewhat complex, so please contact us for more information — and to find out what tax-saving strategies may be effective in your particular situation.

New IRS website provides health care law information for just about everyone

Many provisions of the Patient Protection and Affordable Care Act of 2010 have recently gone into effect, and some significant provisions will do so in 2014 and 2015. To help individuals and families, employers (both large and small), and other organizations learn more about how they’ll be affected, the IRS has launched a new website: IRS.gov/aca. The site offers information on the tax benefits and responsibilities for various groups, such as:

• Individuals and families — new additional Medicare taxes, changes to the itemized medical expense deduction and open enrollment for the Health Insurance Marketplace
• Employers — determining whether you’re a large or small employer, shared responsibility payments for large employers, and the small business health care tax credit
• Other organizations — tax provisions for insurers, certain other business types and tax-exempt and government organizations

While the new website provides substantial information on tax-related provisions of the health care act, it’s no substitute for professional advice. So please contact us for more information on how you can take advantage of any benefits available to you and minimize any negative tax consequences.