RX Tax Deductions

I do not have allergies, that I am aware of; however, my son is allergic to most everything it seems.  At a certain time of the year, he sniffles, sneezes and has watery eyes for long stretches of time.  Fortunately, we are able to remedy a great deal of his ailments with over-the-counter allergy medicines.  Those who rely on EpiPens are in a bad place with the EpiPen price increases.

The lifesaving EpiPens are used when a person has an allergic emergency - anaphylaxis.  The EpiPen dispenses epinephrine; which, according to the NewYork Times, will reverse swelling, closing of the airways and other symptoms of severe allergic reactions to bee stings, peanuts or other allergens.  These pens are important for children and adults to carry at all times.  Mylan Pharmaceuticals acquired the EpiPen in 2007.  At that time, it was priced at $100 for a two-pen set.  It is now running at more than $600 for the set, according to GoodRx.

Mylan is undergoing questioning on the price hike.  The CEO, Heather Bresch, chalks it up to running a for-profit business.  

     

Meanwhile, what can you do with the expenses you incur from purchasing these pricey pens?  The best case scenario is your insurance carrier covering the cost of the pens.  If that is not the case or there is a copay involved, the out-of-pocket medical expenses can be paid or reimbursed with non-taxed dollars. 

• A Flexible Spending Account (FSA) is a great way to set aside pre-tax dollars to pay the cost of copays, medications and other medical expenses.  This option is beneficial tax wise as fewer dollars are subject to tax.  The drawback to this type of account-it is a use it or lose it plan.  The money must be spent by a certain date or it is forfeited.
• A Health Spending Account (HSA) plan is similar to the FSA except the money in the account is not forfeited at the end of the time period.  An HSA is a tax-exempt account that is part of a high deductible health plan.  This account is used to pay or reimburse certain medical expenses.  After-tax dollars contributed to the HSA can qualify for a tax deduction without itemizing.  Contributions can be made through the employer payroll deduction with pre-taxed dollars (these do not qualify for the tax deduction because they are pre-tax).  The contributions stay in the account until they are used. 
• Medical deduction through itemizing is another option.  All your medical expenses must exceed 10 percent of adjusted gross income (AGI).  If you are 65 or older you have a 7.5 percent limit.  How this works is if your AGI is 50,000, your medical expenses must be 5001 to take 1 dollar of medical deduction on your tax return (assuming your total itemized deductions are greater than the standard deduction-more on this another day). 

This is not an answer to the rising cost of medicine but hopefully it will help at tax time.

Let's Help Louisiana

Picture courtesy of Pixabay

Catastrophic is one word I'd use to describe the Louisiana flood.  As the CNN report states; 60,000 homes damaged, 6.9 trillion gallons of rainfall in one week, $30 million in estimated cost and the most tragic are the many lives lost.  There is controversy over whether political figures visited the devastation untimely or planned later arrivals to allow rescue crews to perform without interference.  Whatever the case, Louisiana has been declared a state of emergency and tax relief is in place for the flooding victims.

Help is needed in a great way.  Many families are in need of support from Americans across our Nation.  If you want to help, monetary donations are welcome.  Send cash donations to trusted organizations such as:

•       The Salvation Army:  Gulf Coast Flood Relief Efforts – click the link to donate online or text STORM to 51555.
•          The American Red Cross:  Louisiana Floods – click the link to donate online.

“We talk a lot about hope, helping, and teamwork.  Our whole message is that we are more powerful together” – Victoria Osteen

 As small reminder, your charitable contribution may provide a tax deduction.

Read more about the flooding devastation and see the numbers associated on the CNN website: Louisiana's Mammoth Flooding By The Numbers

Divorce & Taxes

This photo is courtesy of Pixabay.com

Unfortunately, life doesn’t always work out as planned.  One day, love is in the air, flowers are blooming and vows are promised. The next day, the couple is in court dividing property down to who gets Fido!  What happens to the tax return - part of the year, the couple was married, the other part they weren’t?  Are they able to file a joint tax return since they were married part of the year?  Can they file married filing separate?  Who gets to claim the child?

These are very good questions and very common.  Here are some answers that may help:

Marital Status:  December 31^st is the date to remember in terms of what filing status should be claimed on the tax return.  Marital status at the end of the tax year determines how the tax return should be filed.  It doesn’t matter whether or not the marriage lasted for more than half the year.  If the divorce was finalized on December 31^st, do not file a joint tax return nor a married filing separate tax return.

The appropriate filing status may be single.  If there is a qualifying child, then the head of household filing status may apply.  The head of household status is more favorable because it provides a larger standard deduction ($9,300 in 2016 versus $6,300 for the single status).

Who claims junior? Review the divorce decree for specifications as to which party claims the dependent for which year.  The non-custodial parent should request the custodial parent sign the Form 8832 and the non-custodial parent attach this signed form to the tax return.  According to 26 US Code §152(e)(2) the non-custodial parent needs to attach written release of claim to be granted the dependency exemption (claim the child).

Alimony This is taxable income to the recipient.  Child support is not taxable income however, alimony is and must be claimed as income not subject to self-employment tax.  The payer of alimony receives a tax deduction on their return for the payments made.  Again, there is not a deduction for child support as it is not taxable income.

Tax law can be complicated, seek the assistance of a trusted advisor, a tax professional.

This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.