In the second of a two-episode series, Tim Jacobs of Hunton Andrews Kurth continues his discussion of the energy credits enacted in the Inflation Reduction Act and the proposed regulations. – Forbes – Taxes
Desire by many taxpayers to protect the environment while simultaneously accessing a congressional tax incentive is fairly constant. But the IRS keeps changing things. – Forbes – Taxes
The IRS, applying steady if not increasing pressure, added the CRATs strategy to its “Dirty Dozen” list for 2023. – Forbes – Taxes
A candy tax sounds like a fun—and delicious—way to teach your kids about tax. But it teaches the wrong lessons. For one? We don’t have a flat tax. – Forbes – Taxes
Spurring economic growth in America’s declining cities and regions has been a hard-to-achieve goal of public policy. – Forbes – Taxes
House Speaker Mike Johnson has proposed legislation that would send billions of dollars to Israel in exchange for equal cuts to the IRS budget. – Forbes – Taxes
During the pandemic, the IRS had no choice but to begin to move towards new technologies—including accepting digital signatures. Now, they’re extending those provisions. – Forbes – Taxes
Under this bill, Israel’s funding would receive a significant boost, aiming to strengthen the bond between the US and Israel. – Forbes – Taxes
Updated for tax year 2023.
Animals do more than warm our hearts — they’re road trip buddies, winter lap warmers, and sometimes, legitimate treatments for medical conditions.
If you’re an American taxpayer wondering how having a service animal might impact your taxes, you’ve come to the right place. Let’s go over some of the IRS guidelines and help you determine if your pet might be a tax benefit.
At a glance:
Service animals can qualify for tax deductions if they help you with a specific disability or impairment.
Emotional support animals that provide comfort but lack specific training typically do not qualify for a deduction.
You can deduct food expenses, veterinary care, and more if your pet qualifies.
Service animals, like guide dogs, can be invaluable for people with specific disabilities. These animals are crucial in alerting their owners to potential health episodes, guiding them, or providing emotional support to those suffering from post-traumatic stress disorder (PTSD).
While your fur baby may not qualify as your dependent, you might be eligible for a tax deduction if you need a service dog or another animal to help you navigate daily life. Let’s look at some specifics.
The Americans with Disabilities Act (ADA) defines service animals as dogs “individually trained to do work or perform tasks for an individual with a disability.” This can include tasks such as:
Guiding people who are blind
Alerting individuals who are deaf
Pulling a wheelchair
Alerting and protecting a person during a seizure
Calming an individual with PTSD during an anxiety attack or panic attack
Service animals are not considered pets, but working animals that are allowed where pets are typically prohibited. According to the IRS, if you have a service animal “primarily for medical care to alleviate a mental defect or illness” and can establish that your animal companion qualifies as a treatment for your medical condition, you could claim certain pet-related expenses on your taxes.
Emotional support animals (ESAs) who solely provide comfort or emotional support are generally considered pets and do not qualify as service animals, meaning you cannot claim an expense deduction for them.
A service animal must be specially trained to perform a specific job or task to help you cope with your condition. If your pet soothes your anxiety by simply being near you, it likely does not qualify as a service animal.
The IRS has specific guidelines for pet owners to help you determine if your pet qualifies as a service animal. At the very least, you should be able to provide written documentation of your need for a service animal from a licensed health professional.
In general, here’s what the IRS looks for:
You have a diagnosed medical condition. If a physician diagnosed you with a medical condition and recommended an animal for treatment or mitigation, they likely qualify as a service animal. This can be true of a guide dog to help with your blindness or an animal that alerts you that a seizure is imminent. Always cover your bases and get your physician’s recommendation in writing — the IRS loves documentation.
Links between the treatment and the illness. It will help your case if there is an established history of others with your condition using pets for similar treatments. If you can point to a published study praising squirrels as a pocket-sized alert for low blood sugar, the IRS is more likely to take your request seriously. It’s a good idea to look for any connections that unite your underlying medical issue with your decision to get a service animal and have them ready to back up your claim.
Effectiveness of the treatment. Have you seen improvement or relief from the condition you’ve been treating since getting a service animal? Any records detailing this improvement can help bolster your case. Say, for example, you’ve kept a journal documenting your physical therapy progress and how the animal has played a pivotal supporting role in your mobility journey. That can be used to prove the effectiveness of treatment.
Proximity in time to the onset or recurrence of a disease. After reading this far, you may think, “I’ve had my cat since childhood, and she helps ease my anxiety, so of course she counts as a service animal, right?” Here’s the thing — treatment is typically a response to a problem. The IRS is more likely to consider your pet a service animal if you developed a condition or were injured and then acquired the service animal to help you cope. This connects the situation with the treatment and is easier to prove.
If the IRS agrees that your pet qualifies as a service animal, congratulations! You can write off many of your pet’s expenses, including:
Food
Grooming
Training
The cost of buying the animal
Vet bills and medical care
Boarding
Supplies like leashes, vests, or harnesses
Other miscellaneous costs
To deduct costs associated with a service pet, you must itemize your deductions, which means turning down the standard deduction. So, deducting your service animal expenses only makes sense if your total itemized deductions are greater than the standard deduction. For tax year 2023, the standard deduction is $13,850 for single filers ($27,700 for those married filing jointly).
Don’t forget to review your total medical costs. If you have a diagnosed condition that warrants a service animal, you may have other medical expenses to deduct besides your service pet. To deduct medical expenses from your taxes, they must exceed 7.5% of your adjusted gross income (AGI). Your AGI is your gross income minus any adjustments, like IRA contributions or student loan interest you’ve paid. Your AGI will never be greater than your gross income.
Service pets fall under medical expenses, so you’ll list them on Schedule A on Form 1040.
TaxAct® can help you navigate the complexities of your tax return and determine which tax deductions you qualify to claim. Our user-friendly tax preparation software can help you claim your service animal-related expenses without hassle. We’ll guide you through the process and help you report any necessary expenses.
Oh deer. Another surprisingly legal deduction.
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Your Options for Health Insurance Coverage
7 FAQs About the Earned Income Tax Credit
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Turn Your Big Money Ambitions into Manageable Micro Goals
The post Service Animals and Taxes: What Counts and What Doesn’t? appeared first on TaxAct Blog.
– Tax Tips and Tax Planning Resources | TaxAct Blog
Unemployment benefits can be a crucial support for those facing unexpected job loss.
If you collected unemployment compensation for the first time in 2023, you might wonder how it could affect your taxes. Since unemployment income is taxable at the federal level, it’s essential to understand how the process works and what information you’ll need to provide when filing your taxes. Let’s go over the basics.
At a glance:
Unemployment payments are taxable at the federal level.
State taxation of unemployment benefits varies by state.
Form 1099-G details all the unemployment compensation taxpayers received during the year and any federal or state taxes withheld.
Unemployment benefits are a form of financial assistance provided to those who have lost their jobs. Typically, your state administers unemployment compensation. You must meet specific eligibility criteria to qualify for unemployment benefits.
Before diving into how unemployment is taxed, let’s review if you qualify for unemployment benefits. Eligibility criteria can vary from state to state, but in general, you must meet the following requirements to qualify:
You lost your job through no fault of your own. In most cases, you can qualify for unemployment benefits if you were laid off, furloughed, or terminated due to reasons beyond your control. However, you usually won’t be eligible if you voluntarily resigned or were fired for misconduct.
You meet your state’s earnings and work history requirements. Typically, you must have worked for a set amount of time and earned a minimum amount in the year before applying for unemployment. These requirements vary by state.
You are actively seeking employment and are available for work. To receive unemployment compensation, you generally need to be looking for a new job and may be asked to report your job search activities.
You must be registered with your state’s employment service if necessary. Some states require you to register with their employment service before receiving unemployment benefits.
In short, yes, unemployment compensation is considered taxable income. When you receive unemployment benefits, you are required to report them on your federal income tax return. The IRS treats unemployment as income, just like wages or salary from a job, which means they are subject to federal income tax.
The state taxation of unemployment benefits varies depending on your state. Some states don’t tax unemployment at all, some only tax a portion of unemployment benefits, and other states tax unemployment compensation the same as regular income.
If your state does not have a state income tax, you don’t have to worry about paying state income taxes on your unemployment compensation. In addition, Alabama, California, Montana, New Jersey, Pennsylvania, and Virginia do not tax unemployment benefits, even though they impose state income taxes.
If you’re unsure whether your state taxes unemployment benefits, be sure to check with your state’s tax agency for more information.
To make it easier to pay taxes on your unemployment benefits, you can request to have federal taxes withheld from your unemployment checks. You can typically sign up for voluntary withholding when you initially register for unemployment benefits. If you choose this option, no matter what your tax bracket is, your benefits will be withheld at a flat tax rate of 10%.
If you did not choose this option when registering, you can still request your federal taxes be withheld by filling out Form W-4V, Voluntary Withholding Request.
You can also choose to make quarterly estimated tax payments or simply pay your federal taxes in one lump sum when you file.
Check with your state unemployment office for state tax withholding options, as protocols can vary.
You should receive Form 1099-G, Certain Government Payments, from your state’s unemployment office during tax season. This form tells you how much unemployment income you received during the tax year, and you can use it to correctly report all your taxable income when filing.
The amount of unemployment income you received is reported in Box 1, and any federal tax withheld is reported in Box 4. State tax withheld is reported in Box 11.
You’ll use Schedule 1, Additional Income and Adjustments to Income, to report your unemployment compensation on your federal tax return.
If you received unemployment income this year, it could mean your income was less than in prior years. A lower income might make you eligible for tax credits you otherwise would not have been able to claim, such as the Earned Income Tax Credit.
Also, keep in mind that if you didn’t have enough tax withheld from your unemployment benefits, you should expect to owe more at tax time. The opposite is also true — if you overpay taxes on your unemployment income, you’ll receive any excess money back as a tax refund.
If you use TaxAct® to file your federal tax return, reporting unemployment income is straightforward. We’ll walk you through the necessary steps and help you report your unemployment income correctly using our tax software.
The post Is Unemployment Compensation Taxable Income? appeared first on TaxAct Blog.
– Tax Tips and Tax Planning Resources | TaxAct Blog
Recently disclosed internal IRS documents reveal its belief that it can get extensions to impose FBAR penalties at any time, even after the assessment period has passed. – Forbes – Taxes
Joseph J. Thorndike predicts that the rise of intransigence in the GOP and an impending government shutdown will have negative effects on the IRS. – Forbes – Taxes