tax deduction

Deducting transgender medical expenses

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

Bruce Jenner has a new life as Caitlyn Jenner. She revealed her new look this week on the cover of Vanity Fair magazine.
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It’s the most followed male-to-female transgender case since Army Pvt. Bradley Manning, who was sentenced in July 2013 to 35 years at Fort Leavenworth for Espionage Act violations in connection with Iraq war material sent to the WikiLeaks website. A month after that conviction, Manning announced she is transgender and would be living as a woman named Chelsea.

Manning’s situation raised another issue. Would the U.S. government pay for Manning’s physical transition from man to woman? The answer, ultimately, was yes. Earlier this year, the U.S. Army finally began paying for federal inmate Manning’s hormone treatments.

Jenner, thanks to the wealth she’s accumulated as an Olympic champion and more recently as a reality television star as part of the Kardashian family, is financially able to cover her gender transition costs, from hormone therapy through the final surgeries.

But the matter of Uncle Sam’s involvement still is relevant, thanks to the Internal Revenue Code and a 2010 U.S. Tax Court decision.

Gender transition medical issues

Gender identity disorder is listed in the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders. Since it is a recognized medical condition, costs for treatment — that is, transitioning from one gender to another — are allowable medical tax deductions.

This was confirmed in 2010, when the IRS lost a Tax Court case in which a taxpayer deducted transgender medical costs. The court ruled that necessary treatment for gender identity disorder qualifies as medical care under the tax code, making the costs related to that care tax deductible.

The IRS followed with its own announcement on the court ruling in late 2011.

No tax judgment, just IRS rules

While such procedures attract a lot of attention, both in support for and opposition to transgender issues, tax law isn’t judgmental. All that matters is that the costs meet tax code requirements.

As noted, the first hurdle is that the treatment be medically necessary. That’s an issue for all patients and their physicians to determine. They also must be prepared to prove any therapeutic need if the IRS questions deductions.

Once that’s done, then the patient must itemize the deductions.

Shifting medical thresholds

But there is another consideration on Schedule A. The write-offs also must meet a threshold.

For younger taxpayers, all itemized medical expenses must exceed 10 percent of the patient/taxpayer’s adjusted gross income in order to be claimed.

Jenner, however, is eligible for a bit of a break. She turned 65 last October. Filers age 65 or older are allowed to deduct qualifying medical expenses that exceed 7.5 percent of their adjusted gross income. That rule is in effect through 2016.

While Jenner is estimated to be worth $100 million, much of that amount likely is from real estate holdings, so she might have annual income low enough to make at least some of the medical costs deductible. A check of a Philadelphia specialist’s price list for male-to-female transgender surgeries came to $140,450. Hollywood doctor costs are likely to be even higher.

Of course, I suspect that Jenner has some type of health insurance that will pay for part of the costs. Only uninsured and other out-of-pocket medical costs can be counted as medical deductions.

For the rest of us, regardless of whether we have literal life-changing medical expenses like Jenner or simply run-of-the-mill medical costs, it’s always worth checking on possible help via the tax code.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Midyear Tax Planning Ideas

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

 

mid-year-tax-planning

Tax planning is a year-round process, so now is a good time to think about the following:

Are you considering making a cash gift to a relative? If so, consider making the gift in conjunction with the overall revamping of your stocks and mutual funds held in taxable brokerage accounts to achieve better tax results. Don’t gift loser shares (currently worth less than you paid for them). Instead, sell these shares, recognize the capital loss on your tax return, and then gift the cash proceeds to a relative. However, do gift winner shares to lower tax bracket relatives (unless they are under age 24 and subject to the Kiddie Tax). The 2014 annual gift tax exclusion is $14,000.

Are you considering making a contribution to a favorite charity? The previous strategies will also work well for contributions to qualified charities. Sell loser shares, recognize the loss on your tax return, and then give the cash proceeds to the charity and claim the resulting charitable contribution (if you itemize). Donate winner shares to the charity and deduct the full current fair market value at the time of the gift (without being taxed on the capital gain). The tax-exempt organization can sell your donated shares without owing tax.

Are you self-employed? Consider employing your child in the business (but pay a reasonable wage for their age and work skills). This practice can shift income (which is not subject to the Kiddie Tax) to the child who is normally in a lower tax bracket, decrease payroll taxes, and enable the child to contribute to an IRA.

Is your estate plan current? If you already have an estate plan, it may need updating to reflect the current estate and gift tax rules. For 2014, the unified federal gift and estate tax exemption is a generous $5.34 million, and the rate is 40%. Furthermore, the impact of the Supreme Court’s Windsor decision and resulting IRS changes in the federal definition of marriage mean that legally married same-sex couples need to revise their estate plan. Plus, there may be nontax reasons to update your estate plan.

Please contact us to discuss any tax planning strategies you are interested in implementing.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Tax Incentives for Higher Education

tax advice from westchester tax preparation firm

You may be able to save money on your taxes if you qualify for these educational tax credits and deductions

 

Westchester tax preparers at Herman & Company CPA’s have all the answers to your personal finance questions!

The tax code provides a variety of tax incentives for families who are paying higher education costs or are repaying student loans. You may be able to claim an American Opportunity Credit (formerly called the Hope Credit) or Lifetime Learning Credit for the qualified tuition and related expenses of the students in your family (i.e. you, your spouse, or dependent) who are enrolled in eligible educational institutions. Different rules apply to each credit and the ability to claim the credit phases out at higher income levels.

If you don’t qualify for the credit, you may be able to claim the “tuition & fees deduction” for qualified educational expenses. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. This deduction phases out at higher income levels.

You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not have to itemize your deductions on Schedule A Form 1040. However, this deduction is also phased out at higher income levels.

Our Westchester CPA firm is your one-stop shop to maximizing your tax deductions. Herman & Company, Certified Public Accountants & Consultants proudly serves businesses and individuals inWestchester County, NY, Armonk, NY, Bedford, NY, Bedford Hills, NY, Chappaqua, NY, Harrison, NY, Katonah, NY, Larchmont, NY, Mt. Kisco, NY, Rye Brook, NY, Pound Ridge, NY, Purchase, NY, Rye, NY, Scarsdale, NY, White Plains, NY and Greenwich, CT.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.