Question: I see my [general practitioner] every three months, have blood work done every three months, and take a number of prescription medicines on a daily basis. Can I deduct any of this on my tax return?
— B.C., Warwick
Answer: You can try, but you’d be among the minority of taxpayers who succeed. Most people don’t deduct medical expenses because there are too many hurdles to clear. For example:
•Itemizing: When you do your federal income-tax return, you have a choice: You may claim a lump-sum deduction (called the standard deduction), or you may make a separate list of all your deductions (a process known as itemizing, done on Schedule A of your U.S. Form 1040).
In general, you use whichever method gives you a greater tax benefit.
Most people don’t itemize; they claim the standard deduction. The medical expense deduction is only for those who itemize.
•Income Hurdle: Even if you do itemize, you still have another hurdle to clear: In general, you may deduct only those medical expenses that exceed 7.5 percent of your adjusted gross income (AGI). Your AGI is a figure found on the front of your return.
Suppose your AGI for 2006 is $30,000. In that case, you can deduct only those medical expenses that exceed $2,250.
So if your medical expenses for 2006 total $2,000 in this example, you can’t deduct any of them. If they total $2,500, you can deduct only $250.
See how hard it can be?
Consider these numbers: For 2003, about 130 million individual income-tax returns were file. Of those, about 44 million itemized their deductions, Internal Revenue Service figures show. And only about 8.7 million claimed the medical expense deduction.
In other words, only about 7 percent of all returns filed that year claimed the medical expense deduction.
If you manage to clear all the hurdles, you can count a lot of things as medical expenses for tax purposes, such as the cost of physician services, lab fees, prescription drugs and health insurance premiums.
For a detailed list of what you can and cannot count — and for more details on this topic — see IRS Publication 502, “Medical and Dental Expenses.”
For a free copy, visit your local IRS office, call the agency toll-free at 1-800-829-3676, or use this Web site:
Q.: I was just wondering if you can tell me if this [rebate for the federal excise tax on long-distance telephone service] applies to an individual, or can a business get the refund as well.
— R.M., Seekonk, Mass.
A.: Individuals, businesses and tax-exempt organizations — including churches and charities — are eligible. But the method of claiming the rebate differs depending on your situation. Here’s the deal:
Generally speaking, the U.S. Treasury is issuing rebates this season to people who have phone service.
The rebates are for the federal long-distance telephone excise tax that the government shouldn’t have collected.
Most individuals will claim a standard rebate amount of up to $60 right on their federal income-tax returns.
An individual who doesn’t have to file a return may instead file a special form to claim a rebate. It’s Form 1040EZ-T.
Instead of claiming a standard rebate amount, individuals may claim a rebate for the actual amount of federal excise tax they paid on long-distance service by using Form 8913.
(The rebate is for the 3-percent federal excise tax on long-distance phone service billed to you for the period after Feb. 28, 2003, and before Aug. 1, 2006.)
Businesses and tax-exempt organizations can’t claim a standard rebate amount; they must use Form 8913 and attach it to their 2006 return. (Businesses will attach the form to the return they normally file, such as a Form 1120, 1120S, 1065 or 1041; nonprofit organizations will attach it to their Form 990-T.)
Although businesses and tax-exempt organizations must complete and file Form 8913, they do have a choice: Claim the actual amount of federal long-distance telephone excise tax, or use a special formula (involving estimates) to calculate their rebate amount.
Using the formula saves time; you won’t have to pore through 41 months of old phone bills, IRS spokeswoman Peggy Riley said.
For more information about this “business and nonprofit estimation method,” see IRS Notice 2007-11. It’s available at the IRS Web site. The site’s home page also has a link to more information about the phone-tax rebate:
By the way: The IRS last month said that, based on early filings of returns, some individual taxpayers have requested “large and apparently improper amounts” for the rebate.
The IRS said it is investigating potential abuses in this area and will take prompt action against taxpayers who claim improper refund amounts, and against the return preparers who help them.
“While the vast majority of taxpayers are claiming the telephone tax refund correctly, we are seeing some clear abuse involving overstated refund requests,” IRS Commissioner Mark W. Everson said in a statement.
“People requesting an inflated amount will likely see their refund frozen, may have their entire tax return audited and even face criminal prosecution where warranted,” he said.
Some taxpayers are requesting a refund of the entire amount of their phone bills, instead of the excise tax amount to which they’re entitled, the IRS said.
Some are seeking rebates for thousands of dollars, indicating that they had phone bills topping $100,000 — an amount exceeding their income, the IRS said.
The agency also said that some tax preparers are helping their clients file apparently improper requests.
“If we find inappropriate refund claims, we will aggressively pursue tax preparers and promoters who make the improper requests, and we will contact individual taxpayers in egregious situations,” Everson said. “Audit letters will be sent out soon and, when appropriate, our investigators will visit tax preparers who have been preparing questionable telephone tax refunds.”
TODAY’S TIP: Certain IRS offices today begin offering free tax preparation and electronic filing service for people whose income is below $39,000, Riley said. Among those offering the service is the IRS office at 380 Westminster St. in downtown Providence.
If you don’t have to file a return, you probably still can qualify to file that special form for a phone-tax rebate. The Providence IRS office will help you prepare and file the form, Riley said. You may also electronically file such a rebate request at no charge through the IRS’ Free File program. Check out the Free File link on the home page of the IRS Web site: