Medical Deduction Allowed for Breast Pumps

As a recent parent, I thought this information is important to share:

Medical Deduction for Breast Pumps: Breast pumps and supplies that assist lactation are considered to be medical care under IRC Sec. 213(d) because, like obstetric care, they affect a structure or function of a woman's body. If the remaining requirements of IRC Sec. 213(a) are met, expenses paid for breast pumps and supplies that assist lactation are deductible medical expenses. IRS Ann. 2011-14, 2011-9 IRB 532 .

Expiring Business and Individual Tax Provisions for 2011

Business Tax Provisions: According to a Congressional Research Service report dated 12/1/11, the following will expire on 12/31/11: (1) the research and development and the work opportunity tax credits; (2) the enhanced charitable deductions for contributions of food, books, and computer technology; (3) the special S corporation built-in gains tax suspension period; and (4) the 15-year recovery period for leasehold improvements, restaurant property, and retail improvements. Furthermore, the 100% bonus depreciation deduction will be scaled back to 50% in 2012, and the Section 179 deduction limit will fall from $500,000 this year to an inflation-adjusted $139,000 in 2012. 

Individual Tax Provisions: According to the same Congressional Research Service report, the following deductions will expire on 12/31/11: (1) elementary and secondary school teacher expenses, (2) state and local sales taxes, (3) mortgage insurance premiums, and (4) qualified tuition and related expenses. The 2010 Tax Relief Act allowed a taxpayer's nonrefundable personal credits to offset regular tax (net of any allowable foreign tax credit) and AMT for 2011, and also authorized a reduction in the employee's share of the Social Security payroll tax to 4.2% for 2011. Congress may extend the payroll tax break, and presumably will pass another (one year) AMT patch. Finally, the tax-free treatment of distributions from IRAs for charitable purposes will expire at the end of 2011. 

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Tax Benefits fo 529 College Savings Plans

The state-tax savings for families who invest in Section 529 college savings plans depend very much on where they live. WSJ.com provides a state-by-state breakdown:

For all the risks that come with investing in 529 college savings plans in a period of market tumult, investors in most states have one certainty: that they'll receive state tax benefits for their contributions to their home state's plan. But those tax savings are much richer in some states than in others, as these figures for one hypothetical family show. 

Investors make roughly a third of their contributions to the state-sponsored 529 plans during the fourth quarter of each year, and most of that money comes rushing in during December as families look ahead to tax season, says Paul Curley, director of college-savings research at Financial Research Corp. in Boston. 

Most states offer a tax deduction. For one child, a married couple's annual write-off is capped at levels ranging from $250 (in Maine) to $26,000 (in Pennsylvania), says Joe Hurley, founder of Savingforcollege.com, which tracks 529 plans. Four states—Colorado, New Mexico, South Carolina and West Virginia—don't have annual deduction limits, but cap total deductions over time for each child. The limit can be as much as $318,000 (in South Carolina). 

For parents saving for two children's college education, the annual deduction caps in 10 states double. In Kansas, for example, it's $6,000 for one child or $12,000 for two. 

Instead of deductions, three states—Indiana, Utah and Vermont—give tax credits for a portion of 529-plan contributions. 

Sixteen states don't offer any tax benefits. To be sure, a few are states that don't have a personal income tax, such as Florida and Texas. But several of those states, including California, Hawaii and Minnesota, have high tax rates. 

Beyond tax benefits, some states are offering free cash in their 529 plans. While most have income limits, some give money just for starting a 529 plan. For example, Maine and Rhode Island offer $500 and $100, respectively, for parents who start a 529 plan before their child's first birthday. 

One drawback: Because the tax benefits are typically limited to plans sponsored by the taxpayer's state, that can stop people from choosing a different 529 plan with better-performing investments, says Deborah Fox, a San Diego-based financial planner and founder of Fox College Funding. The exceptions are Arizona, Kansas, Maine, Pennsylvania and Missouri, where residents can choose a 529 plan from any state while still receiving their own state's deduction.

FTB Offers Clarification on Deductibility of Property Taxes

Legal Division Guidance 2011-12-01
(Real Property Tax Deductions)

Q: Does a real property tax need to be ad valorem in order to be deductible as an itemized deduction?

A: Yes. A real property tax needs to be ad valorem in order to be deductible under Internal Revenue Code section 164, to which California law is fully conformed.

The Internal Revenue Service's (IRS) well established official position, to which California law conforms, is that the only real property taxes deductible as an itemized deduction are those that are assessed on the basis of the value of the property, i.e., ad valorem. The federal position, supported by federal legal analyses (General Counsel Memoranda 37927 (1979); see also General Counsel Memorandum 36466 (1975)), rulings (Rev. Rul. 80-121, 1980-1 C.B. 44 (1980); see also Priv. Ltr. Rul. 8033022, May 20, 1980), regulation (Treas. Reg. sec. 1.164-4(a)), and case law (Sandy Lake Road Limited Partnership v. Commissioner (1997) TC Memo 1997-295), unquestionably limits the deduction for real property taxes to those that are assessed on the basis of the value of the property. Finally, the 2010 Instructions for Schedule A (Form 1040) provide, in part, as follows -- "Line 6 Real Estate taxes include taxes (state, local or foreign) you paid on real estate you own that was not used for business, but only if the taxes are based on the assessed value of the property assessed." (See also Publication 17 (2010), at p. 146, and Publication 530 (2010), at p. 2.)

Further, taxpayers may not deduct assessments (whether assessed on an ad valorem basis or otherwise) for local benefits (such as street, sidewalk, and other like improvements) of a kind tending to increase the value of the property assessed that are imposed because of and measured by some benefit inuring directly to the property against which the assessment is levied. These nondeductible amounts may be added to the basis of the property in accordance with Internal Revenue Code section 1016 and the applicable regulations. Federal law does, however, provide that the portion of the above-discussed assessments for local benefits that are made for the purpose of maintenance or repair, or for the purpose of meeting interest charges with respect to those local benefits, are deductible. Federal regulations provide that the burden is on the taxpayer to show that a portion of the amount assessed is allocable to these purposes. If the allocation cannot be made, the federal regulations provide that none of the amount so paid is deductible.

Finally, a 2003 IRS Office of Chief Counsel Memorandum provides the apparent basis for a conclusion that assessments may be deductible as real property taxes even though they are not imposed on an ad valorem basis. However, this was an internal memorandum drafted by a local IRS attorney which is inconsistent with published federal guidance, should not be considered written advice, and, according to conversations with IRS Office of the Chief Counsel, does not reflect the official position of the IRS. This internal memorandum has never been released nor made available by the IRS and the conclusion expressed in it has never appeared in any IRS ruling, written advice, publication or guidance.

WSJ: Special Tax Deductions for Special Education

Wall Street Journal Tax Report, Special Tax Deductions for Special Education, by Laura Saunders:

More than six million children in the U.S. fall into the "special needs" category, and their ranks are expanding. The number of those affected by one developmental disability alone—autism—grew more than 70% between 2005 and 2010.

The tax code can help—if you know where to look. There are numerous tax breaks for education, but the most important one for many special-needs students isn't an education break per se. Instead, it falls under the medical-expense category.

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