Taxpayer Help and Education for Tax Year 2000
Please note that this article is for archival purposes only. All information is outdated and has been superceded.
These tips are provided directly by the U.S. Internal Revenue Service. It is only a partial list of all of the tax tips that they offer. We have selected those that would be most useful to people who are caregivers. You may also benefit from other tips not included in this list. Furthermore, not all forms and publications mentioned in these tips are available in the Tax Planning Assistant 2000. All forms and publications are available from the IRS website at http://www.irs.gov.
By accessing these tips, you understand that ElderCare Online is not providing your with tax planning advice. These tips are for educational purposes only. We can not be responsible for omissions or changes. You and your advisors are ultimately responsible for correctly and completely filing tax returns.
Taxpayer Help and Education
If you itemize your deductions on Schedule A, Form 1040, you may be able to deduct medical and dental expenses for yourself, your spouse, and your dependents. Medical and dental expenses include payments for the diagnosis, cure, relief, treatment, or prevention of disease. Expenses may also include payments for treatments affecting any part or function of the body, but they must be primarily for the alleviation or prevention of a physical or mental defect or illness.
Medical expenses include, fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and Christian Science practitioners. Also included are payments for hospital services, qualified long-term care services, accident and health, and qualified long-term care insurance premiums, nursing services, laboratory fees, prescription medicines and drugs, and insulin. Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction are also deductible medical expenses. You may include amounts paid by you for participants in a smoking-cessation program and for prescribed drugs designed to alleviate nicotine withdrawal. However, you may not deduct amounts paid for drugs and aids not requiring a prescription, such as nicotine gum and certain nicotine patches.
In addition, you may include expenses for admission and transportation to a medical conference relating to the chronic disease of either yourself, your spouse, or your dependent (if the costs are primarily for and essential to the medical care). However, you may not deduct the costs for meals and lodging while attending the medical conference.
The cost of items such as false teeth, prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and guide dogs for the blind or deaf are deductible medical expenses.
You may not deduct funeral or burial expenses, health club dues, over-the-counter medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery.
Transportation costs necessary for medical care qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance can be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate of 10 cents a mile. With either method you may include tolls and parking fees.
You may include in medical expenses the incidental cost of meals and lodging charged by the hospital or similar institution if your main reason for being there is to receive medical care.
You may not deduct insurance premiums for life insurance, for policies providing for loss of wages because of illness or injury, or policies that pay you a guaranteed amount each week for a sickness. In addition, the deduction for a qualified long-term care insurance policy's premium is limited. See Publication 502 Medical and Dental Expenses.
You may not deduct insurance premiums paid by an employer sponsored health insurance plan (cafeteria plan) unless the premiums are included in Box 1 of your Form W-2.
You can include only the medical expenses paid by you during the year, regardless of when the services were provided. Your total medical expenses for the year must be reduced by any reimbursement. It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.
You may include qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a multiple support agreement. If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child. You can also deduct medical expenses you paid for someone who would have qualified as your dependent except that the person didn't meet the gross income or joint return test.
Your total medical expenses must be reduced by 7.5% of your adjusted gross income. You may claim the remainder as an itemized deduction on Schedule A Form 1040.
If you are self-employed and have a net profit for the year, or if you are a partner in a partnership or a shareholder in an S corporation, you may be able to deduct, as an adjustment to income, 60% of the amount you pay for medical insurance for yourself and your spouse and dependents. You can include the remaining premiums with your other medical expenses as an itemized deduction. You cannot take the special 60% deduction for any month in which you are eligible to participate in any subsidized health plan maintained by your employer or your spouse's employer.
Publication 501, Medical and Dental Expenses, contains additional information. Relevant publications and forms are included in the TaxPak 2000 or may be downloaded from the IRS website at http://www.irs.gov. or ordered by calling 1-800-829-3676.
Taxpayer Help and Education
If you paid someone to care for a qualifying individual so you (and your spouse if you are married) could work or look for work, you may be able to claim the credit for child and dependent care expenses. If you are married, both you and your spouse must have earned income, unless one spouse was either a full-time student or was physically or mentally incapable of self-care. The expenses you paid must have been for the care of one or more of the following qualifying individuals:
In addition to the conditions just described to take the credit, you must meet all the following conditions:
If you qualify for the credit, use Schedule 2 of Form 1040A, or Form 2441 with Form 1040. If you received dependent care benefits from your employer (this amount should be shown in Box 10 of your 1999 Form W-2), you must complete Part III of Schedule 2 (Form 1040A) or Form 2441. You cannot use Form 1040EZ if you claim the child and dependent care credit.
The credit is a percentage, based on your adjusted gross income, of the amount of work-related child and dependent care expenses you paid to a care provider. You may use up to $2,400 of the expenses paid in a year for one qualifying individual, or $4,800 for two or more qualifying individuals. These dollar limits must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income. See Publication 503, Child and Dependent Care Expenses, for additional information.
If you pay someone to look after your dependent or spouse in your home, you may be a household employer. If you are, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For information on this subject see Publication 926, Household Employer's Tax Guide, or Topic 756 and Topic 760.
For information on the Child Tax Credit refer to Publication 17, Your Federal Income Tax.
Publications are available in the TaxPak 2000 or may be ordered from the IRS by calling 1-800-829-3676, or downloaded from the IRS website at http://www.irs.gov.
Taxpayer Help and Education
This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability. Generally, you must be a United States citizen or resident to take the credit. You must also have adjusted gross income and nontaxable social security or other nontaxable pensions that are less than the amounts shown in the instructions for Schedule R of Forum 1040, Schedule 3 of Form 1040A or in Publication 524, Credit for the Elderly or the Disabled.
To claim the credit if you are under age 65 and retired on permanent and total disability, you must receive taxable disability income and not yet have reached the age when your employer's retirement program would have required you to retire. Taxable disability income is defined as "wages or payments in lieu of wages for the period during which the individual is absent from work on account of permanent and total disability."
Use Schedule R of Forum 1040, Schedule 3 of Form 1040A to compute the credit. You cannot take the credit if you file Form 1040EZ.
Generally, if you are married at the end of the year, you and your spouse must file a joint return to claim this credit. However, you may be able to claim the credit on a separate return if you and your spouse lived apart for the entire year. If your filing status is head of household, you may be able to claim the credit even if your spouse lived with you during the first 6 months of the year.
Publication 524, Credit for the Elderly or the Disabled, has more information and is available in the downloadable TaxPak 2000, or can be ordered from the IRS by calling 1-800-829-3676.
Taxpayer Help and Education
A personal representative is responsible for filing certain tax returns for a decedent, and the decedent's estate. The personal representative, may be required to file: the final income tax return of the decedent and any returns not filed for preceding years, the U.S. Income Tax Return for Estates and Trusts, and the United States Estate Tax Return.
The filing requirements that apply to individuals will determine if a final income tax return is required for the decedent.
Whether income must be included or deductions may be taken on the final return is determined by the method of accounting used by the decedent. Most individuals use the cash method. Under this method, the final return should show only the items of income the decedent actually received, that were credited to his account, or were made available to him without restriction before death. Only the expenses the decedent paid before death should be deducted. If the decedent used the accrual method, see Publication 559, Survivors, Executors, and Administrators. Publication 538, Accounting Periods and Methods contains more information about the cash and accrual methods of accounting.
The final return should have the word "Deceased," the decedent's name, and the date of death written across the top of the return. Generally, the person who is filing a return for a decedent and claiming a refund must file Form 1310, Statement of Person Claiming a Refund Due a Deceased Taxpayer, along with a copy of the death certificate. However, if you are a surviving spouse filing a joint return, or a court appointed or certified personal representative, you do not need to file Form 1310. Court appointed or certified personal representatives must attach a copy of the certificate showing the appointment to the return.
If a personal representative has been appointed, that person must sign the return. If it is a joint return, the surviving spouse also must sign it as well. If you are a surviving spouse filing a joint return and no personal representative has been appointed, you should sign the return and write in the signature area, "Filing as surviving spouse." If no personal representative has been appointed and there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as personal representative (See Publication 559). If the gross income of the estate is $600 or more or if a beneficiary is a nonresident alien the fiduciary must file Form 1041, U.S. Income Tax Return for Estates and Trusts.
You may have to file Form 706, United States Estate (and Generation Skipping Transfer) Tax Return. Whether a Form 706 is required to be filed, depends on the value of the gross estate and the amount of taxable gifts the decedent made during life. For 2000 and 2001, an estate tax return is required for a deceased U.S. citizen or resident whose gross estate plus lifetime taxable gifts is more than $675,000.
Publications are available in the TaxPak 2000 or may be downloaded from the IRS site at http://www.irs.gov , or ordered from the IRS by calling 1-800-829-3676.
Taxpayer Help and Education
If you want to claim someone as your dependent, there are five tests that must be met:
The first test is the member of household or relationship test. To meet this test a person must live with you for the entire year as a member of your household or be related to you. The Form 1040 and 1040A instruction booklets list all relatives who meet the relationship test. Your spouse is never considered your dependent. A person is not considered a member of your household if, at any time during the tax year, your relationship with that person violates local law. If a person was born or died during the year and was a member of your household during the entire part of the year he or she was alive, the person meets the member of household test.
The second test is the citizenship test. This means your dependent must be a U.S. citizen or resident, resident alien, or a resident of Canada or Mexico for some part of the tax year. To find out who is a resident alien see Topic 851 and Publication 519.
The third test is the joint return test. Generally, you are not allowed to claim a person as a dependent if he or she files a joint return. However, you may claim a person who filed a joint return merely to claim a refund of tax. This exception applies if the person and the person's spouse were not required to file a return and no tax liability would have existed for either the person or the person's spouse if each had filed a separate return.
The fourth test is the gross income test. Generally, you may not claim as a dependent a person who had gross income of $2,800 or more for 2000. Gross income is all income in the form of money, property, and services that is not exempt from tax. There are two exceptions to the gross income test. If your child is under age 19 at the end of the year or a full-time student under the age of 24, the gross income test does not apply.
The fifth test is the support test. To claim someone as your dependent you must provide more than half of that person's total support during the year. A special rule applies to children of divorced or separated parents. Generally, the custodial parent is treated as the person who provides more than half of the child's support. The noncustodial parent can meet this test if the custodial parent releases his or her claim to the exemption on Form 8332 or by a substantially similar written statement. See Publication 501, Exemptions, Standard Deduction, and Filing Information.
You must include a valid Social Security Number or Individual Taxpayer Identification Number (ITIN), or Adoption Taxpayer Identification Number (ATIN) for each dependent claimed on your tax return or the exemption will be disallowed. For more information on the ITIN, see Topic 857 or Publication 1915. For more information on the ATIN see Publication 968, Tax Benefits for Adoption.
For more information on dependents, see Publication 501, Exemptions, Standard Deduction, and Filing Information, Publication 929, Tax Rules for Children and Dependents. Publications and Forms are included in the TaxPak 2000 or may be downloaded directly from the IRS website at http://www.irs.gov or ordered from the IRS by calling 1-800-829-3676.
Taxpayer Help and Education
Before filing your return, review it to make sure it is correct and complete. The following checklist may help you avoid errors:
1) Did you use the peel-off label and enter any corrections? If you used the label, did you enter your social security number in the space provided?
2) If you do not have a label, or there are too many corrections, did you clearly print your name, social security number, and address, including zip code directly on your return?
3) Did you enter the names and social security numbers for yourself, your spouse, your dependents, and qualifying children for earned income credit, exactly as they appear on the social security cards? If there have been any name changes be sure to contact the Social Security Administration (http://www.ssa.gov) at 1-800-772-1213.
4) Did you check only one filing status?
5) Did you check the appropriate exemption boxes and enter the names and social security numbers exactly as they appear on the Social Security Card, for all of the dependents claimed? Is the total number of exemptions entered?
6) Did you enter income, deductions, and credits on the correct lines and are the totals correct?
7) If you show a negative amount on your return, did you put brackets around it?
8) If you are taking the standard deduction and checked any box indicating either you or your spouse was age 65 or older or blind, did you find the correct amount to enter on line 21 of Form 1040A or line 36 of Form 1040?
9) Did you figure the tax correctly? If you used the Tax Tables (graphics version only , did you use the correct column for your filing status?
10) Did you sign and date the return? If it is a joint return, did your spouse also sign and date the return?
11) Do you have a W-2 form from all of your employers and did you attach all copies of Copy B to your return? File only one return, even if you have more than one job.
12) Did you attach any Forms 1099 that show tax withheld?
13) Did you attach all other necessary schedules and forms in sequence number order given in the upper right-hand corner?
14) If you owe tax, did you enclose a check or money order with the return and write your social security number, tax form, and tax year on the payment? See Topic 158 for more information.
15) Did you make a copy of the signed return and all schedules for your records?
A few of the most common errors are:
It is important that you review your entire return because any errors may delay the processing of your return.
Taxpayer Help and Education
If you want to authorize someone to receive confidential tax information you must file Form 8821, Tax Information Authorization, with each IRS office that will be providing the information. However, Form 8821 cannot be used to name an individual to represent you before the IRS. If you want someone to represent you on a Federal tax matter, file Form 2848, Power of Attorney and Declaration of Representative with the IRS office where you want your representative to act for you. Your representative must be a person allowed to practice before the IRS. Your signature on Form 2848 authorizes the individual or individuals named to receive tax information and to represent you before the IRS. This authority includes, but is not limited to, extending the time for assessing and collecting tax, signing a waiver agreeing to a tax assessment, and waiving restrictions on the assessment and collection of deficiencies of tax. The representative can also substitute another representative if you specifically permit this on the power of attorney. A representative can be authorized to sign an income tax return for you but only in limited circumstances.
If you want to limit what the representative can do on your behalf, indicate these limitations on the appropriate line of Form 2848.
When completing the Form 2848, you must show the name, taxpayer identification number (TIN), and address of the taxpayer, as well as, the name and address of the representative(s), the type of tax, the tax form number and the year(s) and/or period(s) for which the power is granted. You can list returns for any number of specified years and/or periods that have already ended and returns for years and/or periods that will end no later than three years from the date the form is signed.
For example, you may list income tax, Form 1040, for calendar year 2000 and employment tax, Form 941, for the first and second quarters of 2001. A general reference to "all years", "all periods", or "all taxes" is not acceptable. Form 2848 will be returned to you for correction if you use such general references.
Form 2848 must be signed and dated by both husband and wife if a joint return is involved and the same individual will represent both husband and wife. If, however, a husband and wife who have filed a joint return wish to be represented by different individuals, each spouse must complete his or her own power of attorney form.
More detailed information is contained in the instructions to Form 2848. Additional information is also provided in Publication 947, Practice Before the IRS and Power of Attorney. Forms and publications are available in the TaxPak 2000 or may be downloaded from the IRS website at http://www.irs.gov, or ordered by calling 1-800-829-3676.
Taxpayer Help and Education
The IRS sponsors volunteer assistance programs and offers help to taxpayers in many of its offices and other community locations.
The Volunteer Income Tax Assistance Program, which we call VITA, involves IRS-trained volunteers who provide free tax assistance at community locations to individuals who need assistance with basic income tax return preparation. VITA is aimed at those for whom paid assistance may be out of reach. Some examples may include non-English speaking, low to fixed income, people with disabilities or special needs, and the elderly.
Another program, Tax Counseling for the Elderly, (TCE) is designed primarily for persons 60 years or older; particularly those who are confined to their residences or retirement communities. IRS-trained volunteers from non-profit organizations provide free tax counseling and basic income tax return preparation to senior citizens. Volunteers travel to taxpayers' homes if they are unable to come to a local TCE site. See American Association of Retired Persons (AARP) to locate the nearest tax aid site to you.
You can get free telephone assistance by calling 1-800-829-1040. When calling this number you may ask questions to help you prepare your return or ask about a notice you may have received. Also, in certain areas, IRS has local offices you may visit to receive assistance.
The Community Outreach Tax Education Program offers free tax seminars to groups of people sharing common tax interests. IRS employees or trained volunteers conduct tax information seminars at convenient times and places in the community. The seminars can cover a variety of topics tailored to the needs of your organization's members and may include films or videotapes and discussion of tax questions. This program also offers line-by-line self-help tax return preparation for taxpayers who want to prepare their own returns.
If you plan to take advantage of any of the volunteer assistance programs or the self-help return preparation, be sure to bring your current year blank income tax forms, W-2's, 1099's, a list of income and expenses, and a copy of last year's return.
For information on VITA, TCE, and Community Outreach locations and times, or to volunteer for any of these programs, visit your local IRS office, or call 1-800-829-1040.
Taxpayer Help and Education
If you pay someone to prepare your tax return, choose that preparer wisely. A person who prepares tax returns for others should have a good understanding of all tax matters. You may want to check with friends, co-workers, or your employer for help in selecting a "reputable" preparer. Choose a preparer that you know you can contact later, in case IRS examines your return and there are questions regarding how your return was prepared.
Beware of anyone who guarantees you a refund before getting your financial information or who claims to have a "special" relationship with the IRS.
A paid preparer is required, by law, to sign the return and fill in the preparer area of the form. Although the preparer signs the return, you are personally responsible for the accuracy of every item on your return. Carefully review the completed return before you sign it to be sure all tax information, your name, address, and social security number(s) are correct. In addition, the preparer must give you a copy of the return. Never sign a blank return, and never sign in pencil! Your preparer only signs your return if he or she charges you a fee.
If you have provided specific authorization in a power of attorney filed with the IRS, you may have copies of notices or your refund check mailed to your preparer or representative; but only you can sign and cash your refund check. For further information on Power of Attorney, Select Topic 311.
A new Third Party Authorization Check Box has been added to the Form 1040 series of returns for Tax Year 2000. This new Check Box allows you to designate your Paid Preparer to speak to the IRS concerning how your return was prepared, payment and refund issues, and mathematical errors. This designation will allow the Paid Preparer to provide information and answer questions concerning the preparation of your return.
Remember, even if someone else prepares your return, you are responsible for the accuracy of all information on the return.
Taxpayer Help and Education
Household employees include housekeepers, maids, babysitters, gardeners, and others who work in or around your private residence as your employees. Repairmen, plumbers, contractors, and other business people who work for you as independent contractors, are not your employees. Household workers are your employees if you can control not only the work they do, but how they do it.
If you pay a household employee cash wages of $1,200 or more in the year 2001, you generally must withhold social security and Medicare taxes from all cash wages you pay to that employee. For 2000, the wage threshold for the requirement to withhold social security and Medicare taxes is $1,200. Unless you prefer to pay your employee's share of social security and Medicare taxes from your own funds, you should withhold 7.65% (6.2% for social security tax and 1.45% for Medicare tax) from each payment of cash wages. Instead of paying this amount to your employee, pay it to the IRS with a matching amount for your share of the taxes. However, do not withhold or pay these taxes from wages you pay to:
You are not required to withhold federal income tax from wages you pay a household employee. However, if your employee asks you to withhold federal income tax and you agree, you will need Form W-4, Employee's Withholding Allowance Certificate, and Publication 15, which has tax withholding tables.
If you withhold or pay social security and Medicare taxes, or withhold federal income tax, you will need to file Form W-2 after the end of the year.
You will also need a Form W-3. To complete Form W-2 you will need both an employer identification number and your employee's social security number. If you do not already have an employer identification number, you may apply for one by using Form SS-4 or you may call 1-800-829-3976 to order a copy. Refer to Topic 752 and Topic 755 for more information.
If you pay cash wages to household employees totaling $1,000 or more in any calendar quarter of 2000 or 2001, you generally must pay federal unemployment tax on the first $7,000 of cash wages you pay to each of your household employees in 2001 and 2002.
If you must file Form W-2 or pay federal unemployment tax, you will also need to file a Schedule H, Household Employment Taxes, after the end of the year with your individual income tax return, Form 1040. However, a sole proprietor who must file Form 940 and Form 941, or Form 943 for business employees may include household employee tax information on these forms.
You can avoid owing tax with your return if you pay enough federal income tax before you file, to cover both the employment taxes for your household employee and your income tax. If you are employed, you can ask your employer to withhold more federal income tax from your wages during the year. You can also make estimated tax payments to the IRS during the year, or increase the payments you already make. Use Form 1040-ES to make estimated tax payments.
You may have to pay an estimated tax penalty if you do not prepay
your household employment taxes during the year. For more information see Topic 355, Estimated
Tax and Topic 306, Penalty for Underpayment of Estimated Tax, or Publication
926, Household Employer's Guide. Publications and forms are included in the
TaxPak 2000 or may be downloaded from the IRS website at http://www.irs.gov,
or ordered by calling 1-800-829-3676.
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