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Posted by R. C. White on February 11, 2008, 4:27 pm
Please log in for more thread options Hi, Margaret.
Well, you've got some complicated questions and some simple ones. Let's
start with the simple.
A Social Security benefit check is not a "pay check". Please don't try to
handle it like one. First of all, of course, the gross amount is not salary
or other compensation and does not belong on Line 7 of your Form 1040. It
should go to its own Line 20, where you calculate how much - based on your
other income - gets taxed. The only "withholding" from the benefit is Part
B Medicare insurance; unless you elect, there will be no federal or state
income tax withheld. I'm sure you know all that, but sometimes we overlook
the obvious.
For myself, I use a simple recurring transaction that splits into 2
categories: Social Security Income - RCW and , Medical:Insurance:Medicare
Part B - RCW, with the net amount as a deposit to my checking account. This
is set up to recur monthly on the Second Wednesday of each month. (There is
a similar split entry for my wife's pension.)
> For the gross monthly SS benefit, is the correct tax line item "Form 1040
> Social Security income, self"?
Yes.
The Part B premiums go to "Schedule A: Doctors, dentists, hospitals", since
the tax return does not require - or even provide a line for - a breakdown
between insurance premiums and other medical expenses. TurboTax does
provide a Medical Expenses Worksheet, but this is not a required part of
Form 1040; the heading includes the phrase, "Keep for your records". We
should, of course, keep such a worksheet, but we don't get much help from
Intuit in doing this.
As to the more complicated parts, as I've already said, disability benefits
have many a crook and turn in the tax provisions for them. To be sure of
handling them right, you need (1) a knowledge of all the facts and (2) a
very detailed understanding of the tax provisions regarding of each of those
facts. Some disability payments are fully taxable, others are fully exempt
and the rest fall somewhere between.
> But in 2008, I'm going to have to do a claim of right (1341) for years
> 2005-2007 plus lump sum election, and some have said I'll need a really
> good tax professional. Others have said I need a CPA.
The claim of right doctrine is a pretty esoteric subject. Even most general
practitioner CPAs and other tax professionals have not dealt with this and
will not even recognize the phrase. You probably have already researched
it, but here is the first hit from Google on "claim of right".
http://www.nysscpa.org/cpajournal/2004/1004/essentials/p42.htm
With both this and the disability questions, you are in pretty deep and may
be in over your head, even though you obviously are quite competent. Most
CPAs that I have known would not charge for an initial consultation to
discuss your situation and determine whether they can help you. Are there
CPAs in your area who specialize in income taxes?
There have been many cases where I was able to save clients far more than my
fee. And there were other cases where proper reporting required the clients
to pay more taxes. It was not unusual for me to prepare amended returns for
several years Clients often expressed relief at just being able to sleep,
confident that their returns have been handled properly.
RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
rc@grandecom.net
Microsoft Windows MVP
(Currently running Quicken 2008 Deluxe in Vista Ultimate x64 SP1)
> Hi RC, please see comments within.
>
> R. C. White wrote:
>> Hi, Margaret.
>>
>> Social Security and Medicare rules are far too complex for a mere retired
>> CPA like me to try to understand them and advise others on them. It's
>> all I can do these days to try to read my own benefits statements. And
>> my wife and I don't have nearly as many medical bills as many of our
>> contemporaries.
>
> I guess I shouldn't have gone into the disability details, as I'm just
> concerned right now about creating a monthly social security deposit using
> Quicken's "Paycheck" feature. Sorry for confusing the issue!! :-)
>
>> But I can answer your Question 2: The Medicare Part B premium that is
>> deducted from your retirement benefit check each month is deductible as a
>> medical expense. Include it on Schedule A of Form 1040 with all your
>> other medical expenses to see if the total (net of insurance benefits
>> received) exceeds the 7.5% of Adjusted Gross Income threshold. If it
>> does, then include the excess with your deductible state taxes, interest
>> on your home, charitable contributions, etc., to see if the total
>> deductions exceed the Standard Deduction. If they don't then don't
>> bother to itemize, just claim the standard.
>
> I've been itemizing ever since I purchased my home, and my med expenses
> (despite excellent ins coverage) have continued to increase, such that
> I've been able to deduct med expenses for a few years now. Of course,
> tracking them is complicated (but doable), and now that I'm moving to
> Medicare, I'm beginning to wonder if I might need another app such as Q's
> Medical Expense Manager. (Haven't looked at it yet though.) I hate to
> add another app to complicate matters, but I'm interested in hearing how
> you or others track complicated medical expenses/insurance now that
> Medicare is involved. I'm used to having set copays, so tracking of
> deductibles, payments and reimbursements is going to be a new one for me.
>
>> I'm not sure what your phrase, "'after-tax' deduction", means in this
>> context.
>
> Quicken's paycheck feature allows us to specify both pre-tax and after-tax
> deductions. (Pre- are those paid with pre-tax dollars -- and thus not
> deductible come tax time). After-tax are those such as fed & state tax
> withholding, and it seems Medicare insurance premiums, since they're
> deductible on Sched A. For the gross monthly SS benefit, is the correct
> tax line item "Form 1040 Social Security income, self"?
>
>> Remember that I've been retired a long time. Also, individual
>> circumstances vary infinitely, so it is impossible to advise anyone
>> without knowing their full tax situation. Disability insurance and
>> payments add significant complexity. Please discuss this in depth with
>> your own CPA, who should be fully informed as to the current rules and on
>> your complete financial background.
>
> I've been doing my own taxes since I started paying taxes, and I can
> handle some pretty complicated stuff, considering I'm not a professional.
> But in 2008, I'm going to have to do a claim of right (1341) for years
> 2005-2007 plus lump sum election, and some have said I'll need a really
> good tax professional. Others have said I need a CPA. I'm trying to wrap
> my brain around this stuff, because being me, I simply need to understand
> it as much as I can!! :-) Almost every day I find out something else that
> complicates matters further. So I'm leaning toward the CPA, as you
> suggest. I'm glad I've got some time to try to understand all this and
> locate a good CPA who can really help and take some monkeys off my back.
> I just hope I can afford the price tag! :-)
>
> Thx and Regards,
>
> Margaret
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