These tips are provided directly from the US Federal Internal Revenue Service and are
appropriate for tax year 1999. Please consult the appropriate legal and financial
professional if you have questions or need additional guidance. These topics are provided
for educational and informational purposes only.
The Forms, Instructions and Publications mentioned in this article can be downloaded in
the ElderCare TaxPak99. Visit ElderCare Online's Tax Planning Assistant for
even more assistance for tax preparation, such as links to state information, books,
software and additional resources.
Power of Attorney Information
If you want to authorize someone to receive confidential tax information, file Form
8821, Tax Information Authorization, with the 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 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, TIN and address of the taxpayer;
the name and address of the representative, the type of tax, the tax form number and the
year or period for which the power is granted. You can list returns for any number of
specified years or periods that have already ended and returns for years 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 1998 and employment
tax, Form 941, for the first and second quarters of 1998. 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 both husband and wife will be represented by the same individual. 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.
In Part II of Form 2848, the representative must declare that he or she is authorized
to represent the taxpayer and must declare that he or she is one of the listed individuals
(such as attorney or certified public accountant) that can practice before the Internal
Revenue Service. If the representative is licensed as an attorney or certified public
accountant, he or she must also list the state that issued the license.
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 included in the ElderCare TaxPak99, or can be
ordered from the IRS by calling 1-800-829-3676.
If you want to claim someone as your dependent, there are five tests that must be met:
- The member of household or relationship test,
- The citizenship test,
- The joint return test,
- The gross income test; and
- The support test.
The first test is the member of household or relationship test. To meet this criteria,
a person must live with you for the entire year as a member of your household or be
related to you. 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. The Form 1040
and 1040A instruction booklets contain a listing of all relatives who may qualify under
the relationship test. Your spouse is never considered your dependent. 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, or a resident of Canada or Mexico for some part of the tax year.
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 married
dependent who is filing a joint return solely to claim a refund of tax withheld. This
exception applies if neither the dependent nor the dependent's spouse is required to file
a return and no tax liability exists for either spouse on separate returns.
The fourth test is the gross income test. Generally, you may not claim as a dependent a
person who had gross income of $2,650 or more for 1997. 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; however, the noncustodial
parent can meet this test if the custodial parent releases his or her claim to the
exemption. See Publication 501 for more information.
You must include a valid Social Security Number or Individual Taxpayer Identification
Number (ITIN) for each dependent claimed on your tax return or the exemption will be
disallowed. For more information on dependents, see Publication 501, Exemptions,
Standard Deduction, and Filing Information, and Publication 929, Tax Rules for
Children and Dependents. Publications can be downloaded from the IRS website at http://www.irs.gov, or ordered by calling 1-800-829-3676.
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 that the decedent actually received, or had an unqualified right to
receive, 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.
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 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, 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 104l, 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. A return is required for a deceased U.S. citizen or resident
whose gross estate is more than $625,000 in 1998.
Some types of income you receive are not taxable. When you total your gross income to
see if you are required to file a tax return, do not include your nontaxable income. You
should keep records of your nontaxable income. Some types of income that generally are not
1) Child support payments,
2) Welfare benefits,
3) Life insurance proceeds that are received because of the death of an individual,
4) Interest on state or local government obligations,
5) Accident and health insurance proceeds, including certain long term care insurance
6) Certain property received as a gift or inheritance,
7) Benefits received under any law administered by the Department of Veteran's Affairs,
8) Amounts received under a worker's compensation act for an occupational sickness or
9) Qualified education IRA distributions,
10) Certain Roth IRA distributions.
All or a portion of your Social Security or equivalent Railroad Retirement Benefits may
be nontaxable. Some scholarship and fellowship grants may be non-taxable. Publication 525,
Taxable and Nontaxable Income, contains additional information on items not
taxed. Publications and forms may be downloaded from the IRS website at http://www.irs.gov
or ordered by calling 1-800-829-3676.
Medical and Dental Expenses
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
The cost of items such as false teeth, eyeglasses, contact lenses, hearing aids,
crutches, wheelchairs, and guide dogs for the blind or deaf are deductible medical
You may not deduct funeral or burial expenses, health club dues, programs to stop
smoking or lose weight, 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
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
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 deduct 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
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, 45% 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 45% 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 502, Medical and Dental Expenses, contains additional
informationis included in TaxPak99, or can be ordered from the IRS by calling
Child and Dependent Care Credit
If you paid someone to care for a qualifying individual in order to 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
- A child under age 13 whom you can claim as a dependent or whom you could have claimed
as a dependent if you had not granted the exemption to a non-custodial parent in a written
agreement or decree of divorce or separate maintenance, or by a signed Form 8332, Release
of Claim to Exemption for Child of Divorced or Separated Parents,
- Your spouse who is mentally or physically unable to care for himself or herself; or
- Any dependant who was physically or mentally not able to care for himself or herself,
and for whom you can claim an exemption (or could claim an exemption except if the person
had $2,700 or more of gross income).
To take the credit, you must meet all the following conditions:
- You must have earned income during the year, except in the circumstances described
earlier if you are married,
- The qualifying person must have lived with you in a home kept up by you, and
- You must qualify for a filing status other than married filing separately,
- The expenses you pay must be for the qualifying individual's care so you can work or
look for work.
- The payments in number 4, cannot be paid to someone who is your dependent, or child who
is under age 19.
If you qualify for the credit, use Schedule 2 of Form 1040A, or Form 2441 with Form
1040A. If you received dependent care benefits from your employer (this amount should be
shown in box 10 of your 1998 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. You must report the name, address, and taxpayer identification number, (either the
social security number, or the employer identification number) of the care provider on
your return. You can use Form W-10, Dependent Care Provider's Identification and
Certification, to request this information from the care provider.
The credit is a percentage, based on your adjusted gross income, of the amount you paid
someone to care for the qualifying person. You may use up to $2,400 of the expenses paid
in a year for one qualifying person, or $4,800 for two or more qualifying persons. These
amounts must be reduced by the amount of any dependent care provided by your employer. 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.
Credit for the Elderly or the Disabled
This credit is available to certain qualifying taxpayers who are age either 65 or older
or disabled, and whose adjusted gross income and nontaxable social security or other
nontaxable pensions are less than specified amounts which can be found in the instructions
for Schedule R of Form 1040, Schedule 3 of Form 1040A, or in Publication 524, Credit
for the Elderly or the Disabled.
If you are under age 65, you may qualify for the credit if you retired on permanent and
total disability, you receive taxable disability benefits paid under your employer's
accident and health or pension plans, and you have not yet reached the age when your
employer's retirement program would have required you to retire.
Use Schedule R of Form 1040 or Schedule 3 of Form 1040A to compute the credit. You
cannot take the credit if you file Form 1040EZ.
Generally, if you are married, 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 also be able to claim the credit even if your spouse lived with you during the
first 6 months of the year.
For more information see Publication 524, Credit for the Elderly or the Disabled.
Publications are included in ElderCare Onlines TaxPak99, or can be ordered from the
IRS by calling 1-800-829-3676.