To cash in or not to cash in
Ken Milani, left, and Claude Renshaw (January 14, 2013)
That could be good advice, D.M. Already in place to start January 2013 is an increase in the capital gains rate (for sales of investments after Dec. 31) of 3.8 percent, but only for folks with adjusted gross income of more than $200, 000 (for single taxpayers) or $250, 000 (for married couples). So depending on your total income, you might save at least 3.8 percent tax on your gains if you sold them before the end of the year. One other thing to consider: If you really like the stocks you sell, and would like to have them in your portfolio, you could buy them back soon after the sale, and you'd be able to maintain virtually the same position in your investments.
One little "Surgeon General's" warning: There's a pesky little "über" tax, called the Alternative Minimum Tax (AMT), that kicks in when you have an "excess" of tax benefits (including capital gains). The cutoff for the AMT occurs at a level that depends on your age, marital status, size of the family and several other variables. Our advice is to see your accountant before you make the move, and crunch some numbers to see what the result of selling the stock would be.
Of course, if the Mayans are right, and the end of the world is coming this week, it won't really matter, will it?
Handling paperwork for medical expenses
Since I have high health insurance costs, I am able to report medical expenses as part of my itemized deductions. My prescription drug insurer sends me an annual list of all my prescription costs. Can I use this for my IRS records and discard the individual receipts?
J.D., via e-mail
Most taxpayers don't meddle with the medical and dental expense portion of itemized deductions since the required subtraction of 7.5 percent of Adjusted Gross Income usually leaves little or nothing left to declare. Turning to your question, the IRS publication on Medical Expenses (a compelling volume -- that tax pros refer to as Publication 502 -- which lists a wide array of deductible costs ranging from acupuncture to X-rays) states that you should prepare a written summary of medical expenses including prescriptions and "... also keep a statement or itemized invoice ... " supporting your summary. They are quick to add: "Do not send these records with your return." So our advice is to use the summary provided by your prescription drug insurer and keep the backup documents.
Turning to the general topic of medical and dental expenses, we want to mention a couple of costs that many taxpayers overlook in this category, namely, the use of a personal vehicle and premiums paid on qualified long-term care insurance contracts. Mileage (local as well as out-of-town) is tallied at a rate of 23 cents per mile and you can also tack on tolls and parking costs. Premiums on long-term care insurance are allowed as medical expenses with the per person amount tied to "caps" (ranging from $340/person to $4,240/person) established by the Feds and detailed in what may become your favorite post-Christmas "read" -- Publication 502 -- which is available at www.irs.gov.
Tax Talk is written by Ken Milani, professor of accountancy at the University of Notre Dame, and Claude Renshaw, professor emeritus of business administration at Saint Mary's College. It will appear in The Tribune's Business section on Sundays until April 14. Send your questions via e-mail to firstname.lastname@example.org or email@example.com, or snail mail to The Tribune at 225 W. Colfax Ave., South Bend, 46626. Questions cannot be answered personally, but Tax Talk will try to reply to as many as possible in the column.