ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Monday, February 24, 1997 TAG: 9702250139
SECTION: MONEY PAGE: 6 EDITION: METRO
COLUMN: TAX QUESTIONS
Q: I am desperate, paranoid and afraid to sign my name, but I beg you to answer my questions. I dare not call the IRS office for fear they have Caller I.D.
For what my husband considered legitimate reasons, he did not file our joint income tax forms for 1995 and shows no sign of filing for 1996. I am employed but earn a small income and cannot afford to consult a tax attorney. I did not file a separate return for fear of causing my husband more problems.
What are the penalties for not filing, and how long will it be before the IRS comes after us?
A: A penalty may be imposed if a taxpayer fails to promptly file an income tax return on which a tax is due. This delinquency penalty applies if the tax return is filed late or not at all. However, there is no delinquency penalty if there is no tax due. This can occur if a taxpayer has either had sufficient estimated taxes paid or withheld.
The penalty for failing to file a timely return is 5 percent of the unpaid tax, plus an additional 5 percent for each month or part of the month past the filing deadline, not to exceed 25 percent.
There is also a penalty charged to taxpayers for failure to pay income taxes. This penalty is one-half percent of the tax shown on the return (or substitute return) for each month the income tax balance is not paid (up to a maximum of 25 percent).
If the Internal Revenue Service determines that the failure to file an income tax return is a willful attempt to evade income taxes, it can impose a delinquency penalty of 15 percent for each month that the taxes remain unpaid (up to a maximum of 75 percent).
Interest is also charged when taxes and penalties are not paid when due. The interest rate is determined quarterly and is currently 9 percent.
The Internal Revenue Service will typically send a notice within a year requesting that the income tax return be filed. The IRS relies on its database of previously known filers and on information returns (W-2s and 1099s) from third parties (such as employers) for tracking nonfilers. However, if there is a change of address, the notice may not reach the taxpayer.
The Internal Revenue Service is under no requirement to expeditiously notify nonfilers. However, it has been my experience that the IRS will eventually seek out nonfilers. If a return is not forthcoming when requested, the IRS will create a return on behalf of the taxpayer and assess the unpaid income taxes along with penalties and interest.
Taxpayers who delay in filing their returns inevitably worsen their situation. After a few years have gone by, the impact of compounded interest on unpaid taxes and penalties can be dramatic. Often a manageable tax obligation balloons into a much larger financial problem. |-Answered by Stan Boatwright of Lucas & Boatwright.
Q: Are long-term care insurance policy premiums deductible from taxable income? Do any special conditions apply? Coverage on my policy started in October 1995.
A: A taxpayer can claim an itemized deduction for unreimbursed medical expenses (including insurance premiums covering medical care) to the extent such expenses exceed 7.5 percent of adjusted gross income. Prior law did not provide explicit rules relating to the treatment of the cost of long-term care insurance premiums. Thus, the deductibility of these premiums as medical expense was unclear.
The new law expressly includes eligible long-term care insurance premiums in the definition of deductible medical care. Eligible premiums are amounts paid during a tax year after 1996 for any qualified long-term health insurance contract (as described below) up to specified dollar limits, depending on the age of the individual.
The annual dollar limits are $200 for age 40 or less; $375 for ages 41 to 50; $750 for ages 51 to 60; $2,000 for ages 61 to 70; and $2,500 for more than 70.
The above limits are per individual, not per return. Thus, for example, in the case of married individuals each of whom is over the age of 70, the limitation is $2,500 each. If a husband and wife have both paid eligible long-term care premiums, up to $5,000 can qualify as deductible medical expenses on a joint return (subject to the overall floor on the deduction of medical expenses of 7.5 percent of adjusted gross income).
For the purposes of the above-the-line deduction allowed to self-employed individuals for a percentage of their health insurance costs, eligible long-term care premiums are taken into account subject to the annual limitation.
For tax years beginning in any calendar year after 1997, the age-defined dollar amounts shown above will be increased by the medical care cost component of the Consumer Price Index to reflect inflation.
The new law details, over several pages of text, the requirements for a long-term health insurance contract. Generally speaking, the law lists six activities of daily living (eating, toileting, transferring, bathing, dressing and continence) that an individual normally performs for himself.
A qualified contract has to take into account at least five of these activities and can require that an individual be unable to perform (without substantial assistance from another individual) two out of any five of the activities for a period of at least 90 days due to a loss of functional capacity in order for benefits to begin.
I have no way of knowing whether or not your existing policy qualifies under the new law. I would suggest that you contact your agent to be sure.
- Answered by James B. Taney of Anderson & Reed.
LENGTH: Medium: 98 linesby CNB