Category: Blog

How to Deduct Assisted Living and Nursing Home Bills

Watch your wallet: the median cost in 2018 for an assisted living facility was $48,000 and over $100,000 for nursing home care.

If you could deduct these expenses, you’d substantially reduce your income tax liability—possibility down to $0—and dramatically reduce your financial burden from these costs.

As you might expect, the rules are complicated as to when you can deduct these expenses. But I’m going to give you some tips to help you understand the rules.

Medical Expenses in General

On your IRS Form 1040, you can deduct expenses paid for the medical care of yourself, your spouse, and your dependents, but only to the extent the total expenses exceed 7.5 percent of your adjusted gross income.  In December 2019, Congress retroactively reduced the 10% adjusted gross income limitation to 7.5% in 2018.  Therefore, taxpayers can file amended personal income tax returns for 2018 and 2019 as a result of that retroactive tax law change.

Medical care includes qualified long-term care services.

Assisted living and nursing home expenses can be qualified long-term care expenses depending on the health status of the person living in the facility.

If you operate a business, your business could establish a medical plan strategy that could make the medical expenses business deductions for your business.

Qualified Long-Term Care Services

The term “qualified long-term care services” means necessary diagnostic,preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance

or personal care services, which

  • are required by a chronically ill individual, and
  • are provided pursuant to a plan of care prescribed by a licensed health care practitioner.

Chronically Ill Individual

A chronically ill individual is someone certified within the previous 12 months by a licensed health care practitioner as

  1. being unable to perform, without substantial assistance from another individual, at least two activities of daily living for a period of at least 90 days due to a loss of functional capacity;
  2. having a similar level of disability (as determined under IRS regulations prescribed in consultation with the Department of Health and Human Services) to the level of disability described in the first test; or
  3. requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.

A licensed health care provider is a doctor, a registered professional nurse, a licensed social worker, or another individual who meets IRS requirements.

Activities of Daily Living Test

For someone to be a chronically ill individual, at least two of the following activities of daily living must require substantial assistance from another individual:

  • Eating
  • Toileting
  • Transferring
  • Bathing
  • Dressing
  • Continence

Substantial assistance is both hands-on assistance and standby assistance:

  • Hands-on assistance is the physical assistance of another person without which the individual would be unable to perform the activity of daily living.
  • Standby assistance is the presence of another person within arm’s reach of the individual that’s necessary to prevent, by physical intervention, injury to the individual while the individual is performing the activity of daily living.

Examples of standby assistance include being ready to

  • catch the individual if the individual falls while getting into or out of the bathtub or shower as part of bathing, or
  • remove food from the individual’s throat if the individual chokes while eating.

Cognitive Impairment Test

Severe cognitive impairment is a loss or deterioration in intellectual capacity that is comparable to, and includes, Alzheimer’s disease and similar forms of irreversible dementia, and measured by clinical evidence and standardized tests that reliably measure impairment in the individual’s short- or long-term memory; orientation as to people, places, or time; and deductive or abstract reasoning.

Substantial supervision is continual supervision (which may include cuing by verbal prompting, gestures, or other demonstrations) by another person that is necessary to protect the severely cognitively impaired individual from threats to his or her health or safety (such as may result from wandering).

You have much to consider if you face the medical issues above. I’m happy to help you understand if your medical expenses can qualify for the medical deductions and what this means taxwise.

William E Hesch

William E. Hesch Law Firm, LLC

William E. Hesch CPAs, LLC

3047 Madison Road, Suite 201

Cincinnati, Ohio  45209

Office:  513-731-6601

Direct:  513-509-7829

bill.hesch@williamhesch.com

www.heschlaw.com

www.heschcpa.com

 

 

IRS Releases New Form W-4 for 2018

With the new tax law, how much will you owe the IRS when you file your 2018 tax return next April?

Now that most of our clients have their 2017 taxes filed, it is time to start taking action regarding 2018 taxes. The Tax Cuts and Jobs Act or TCJA has an impact on just about every area of tax one can think of in 2018. These changes include increasing the standard deduction, removing the personal exemption, and changing the tax rates and brackets. The impact of these changes will affect both employees and business owners. The first effect you or your employees might notice is that some employees’ take-home pay may have increased due to the adjustment in IRS withholding tables. These larger paychecks are wonderful, but employees should be cautious. An increase in take-home pay might be deceiving because you may actually be under withholding your federal income taxes. If your pay is being under-withheld, it could be a big shock come tax time when you owe the IRS money next April. In order to avoid a surprise tax bill for the 2018 tax year, employees should update their W-4 form. To help individuals deal with 2018 withholding issues, the IRS has recently released a new W-4 Form for 2018 and a Withholding Calculator.

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ABLE Accounts

Last month we told you about Special Needs Trusts, which are an important tool in planning for the support and care of a disabled person. Today, we will continue that conversation and tell you a little about how you can use both a Special Needs Trust and an ABLE Account to plan for the support and care of a disabled person.

ABLE Accounts have been talked about on our blog in the past, but here is a little refresher. ABLE Accounts are available in both Kentucky and Ohio, through the National Achieving a Better Life Experience (“ABLE’) Act. ABLE Accounts allow for a disabled person to save and invest money without losing eligibility for certain public benefits programs, like Medicaid, SSI, or SSDI. Additionally, earnings in your ABLE Account are not subject to federal income tax, so long as you spend them on “Qualified Disability Expenses.” Some examples of “Qualified Expenses” include education, housing, transportation, employment support, health prevention and wellness, assistive technology and personal support. However, ABLE Accounts have limited deposits of $15,000 a year, lifetime funding limits, and a medicaid payback provision. Additionally, the onset of the disability must have occurred prior to age 26. These restrictions on ABLE Accounts make planning all the more important.

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Inherited IRA Options for the Surviving Spouse

Did you know that when you inherit an IRA you can limit your income tax liability by deciding how distributions are made to you?  Unfortunately, many IRA beneficiaries don’t know they have distribution options and so they cash in their inherited IRA and expose themselves to significant income tax liabilities.  The options available to IRA beneficiaries vary depending on if the beneficiary is a surviving spouse or a non-spouse and if the IRA is a traditional IRA or Roth IRA. This article will focus on the typical traditional IRA distribution options for a surviving spouse to limit the surviving spouse’s tax liabilities. Click here for options for non-spouse beneficiaries. Not all distribution options work best for every beneficiary, so beneficiaries are encouraged to consult with their financial advisor, CPA, and attorney to find out which option works best for them.

Option 1: Treat IRA as Own

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Inherited IRA Options for the Non-Spouse Beneficiary

Did you know that when you inherit an IRA you can limit your income tax liability by deciding how distributions are made to you?  Unfortunately, many IRA beneficiaries don’t know they have options and so they cash in their inherited IRA and expose themselves to significant income tax liabilities.  The options available to IRA beneficiaries vary depending on if the beneficiary is a spouse or non-spouse, so this article will focus on the three distribution options non-spouse IRA beneficiaries typically have to limit their tax liabilities. Not all distribution options work best for every situation, so IRA beneficiaries are encouraged to consult with their CPA and attorney to find out which option works best for them.

Option 1: Rollover IRA with Five Year Distribution

If an IRA owner dies and designates a non-spouse beneficiary, such as a child, parent, sibling, or friend, the beneficiary can choose to rollover the IRA into their name, but the entire IRA must be distributed to the beneficiary within five years of December 31 of the year following the IRA owner’s date of death.  This option gives the non-spouse beneficiary access to money relatively soon and spreads out the tax liability over a five year period, rather than in one year if a lump sum distribution is taken.

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How to Have “The Talk” with Your Aging Parents

Remember having “the talk” with your parents in middle school?  That awkward conversation you had with your mom or dad where they tried to explain the facts of life to you while you desperately searched for an excuse to end the conversation?  Well get ready to have another “talk” with your parents, only this time, you’ll be discussing their end-of-life planning, not the birds and the bees.

What does this “talk” need to cover?  Generally, this conversation needs to address the issues surrounding your parents’ twilight years, such as retirement planning, nursing home preferences, funeral arrangements, wills and trusts, powers of attorney, and possible Medicaid planning. Specifically, an estate planning and elder law attorney can identify your parents’ unique estate planning and elder law planning issues and assist with implementing their end-of-life planning strategies.  To have a successful “talk” with your parents, consider using this four-part strategy:

Don’t wait for tragedy to strike

Don’t wait for tragedy to strike before having the conversation.  I often see that families put off talking about these issues until an unexpected illness or death shocks the family, at which time it may be too late to do anything.

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New POA Law Highlights the Need for Estate Planning Review

Financial elder abuse, although often overlooked, is a serious problem in our world today.  As baby boomers age and the average life expectancy rises, the number of elder abuse cases will continue to increase.  More often than not, the abuser in these types of cases is someone in a trusted role – a caretaker, a child, or even an agent appointed in a financial Power of Attorney.  While most agents acting under a Power of Attorney are honest, some have abused their power.  To prevent and punish this kind of misconduct, the Ohio legislature passed the Uniform Power of Attorney Act (UPOAA) in 2012.

The UPOAA says that unless certain “hot powers” are specifically granted in a Power of Attorney document, an agent cannot do the following: (1) create a trust or make changes to an existing trust; (2) make gifts; (3) create or change rights of survivorship for certain assets; (4) change beneficiary designations; (5) allow others to serve as the agent; or (6) waive rights to be a beneficiary under certain annuities and retirement plans.

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Amy E. Pennekamp-Ohio Super Lawyers Rising Star 2016

William E. Hesch Law Firm, LLC is pleased to announce that attorney Amy E. Pennekamp has been named a 2016 Ohio Super Lawyers® Rising Star.  Attorneys are chosen through the independent research of the publishers at Super Lawyers®, a Thomson Reuters business.

Rising Stars are age 40 or younger or have been practicing law for 10 years or less, and represent the top up-and-coming attorneys in the state. Less than 2.5 percent of lawyers are selected for Rising Star status. Super Lawyers®, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a rigorous multi-phased process that includes a statewide survey of lawyers, an independent research evaluation of candidates, and peer reviews by practice area.

Learn more about Amy and find her contact information, here.

Amended Substitute House Bill 5 (HB 5)

Dear Client and Friends:

This year Municipal tax reform will take effect under the Amended Substitute House Bill 5. The Amended Substitute House Bill 5(HB 5) was signed into law on December 19, 2015. The new provisions take effect beginning on or after January 1, 2016. HB 5 provides some relief to the overly burdensome process for businesses in determining what local tax to pay and withhold from their employees when they do business in multiple municipalities.

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Peace of Mind

Submitted by: Chris Allen, President – The Business Spotlight, Inc. and Committee Member of Emerging 30

The William E. Hesch Law Firm, headquartered in Cincinnati, OH, is owned and operated by Bill Hesch, Owner/CEO. His company, founded in 1993, focuses on providing great legal, tax & financial advice (licensed attorney, CPA & Personal Financial Specialist [PFS]) for business owners and high net worth individuals (Estate, Elder Law & Medicaid Planning). Website: www.heschlaw.com
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