Philip Moeller, who writes The Best Life blog for U.S. News and World Report (usnews.com), on February 13, 2009, devoted his space to questions and answers regarding taxation for those of us who are considered "older." U.S. News consulted H&R Block tax expert Gil Charney, principal tax researcher at the company's Tax Institute, where were some of the most commonly asked tax questions this year. Subjects asked about include IRAs and 401(k)s, Social Security, Medicare drugs, estate taxes, long-term care insurance, home deductions, charitable contributions and divorce.
Below is a brief summary of a few of the questions and answers that particularly affect US citizens living abroad who pay US taxes. For the complete article, go to http://www.usnews.com/blogs/the-best-life/2009/02/13/a-dozen-tips-for-older-taxpayers.html.
Q. What about taxation on income earned while drawing Social Security before full retirement age? Mr. Charney's responded, in part:
A. "There are two issues when drawing SS before full retirement age. The first is that income earned above a certain threshold will reduce SS benefits if the taxpayer is under his full retirement age." Secondly, "benefits for taxpayers who are under full retirement age and collecting SS are reduced by $1 for every $2 earned over a certain limit, which is $13,560 in 2008....In addition, a portion of the taxpayer's SS benefits is taxed if the taxpayer's income is above a certain "base amount" (which varies according to filing status). If taxpayers' income is high enough for their SS benefits to be axes, income tax can be withheld from the payments by filing a Form W4V. Otherwise, the taxpayers may have to make estimated tax payments."
Q. What are some of the changes in the rules for estate taxation:
A. "In 2009, the estate tax exclusion is $3.5 million, which means estates in excess of this amount may be subject to the estate tax. However, even if the "gross estate' is larger than this amount, there may not be any estate tax paid. The estate tax exclusion is scheduled for repeal in 2010, which means the estate for anyone who dies in 2010 will not be taxes, regardless of size. In 2011, the exclusion is reduced to $1 million, the same amount in place in 2002....There are ways to minimize the estate tax, such as making lifetime gifts to children and grandchildren (at or below the annual exclusion of $13,000 per year per person in 2009); using irrevocable trusts to transfer assets-and control of those assets-to a taxable entity outside the gross estate, and, creating an irrevocable life insurance trust so that the trust receives any life insurance proceeds which could inflate an estate's total value. Anyone with significant assets should consult an attorney competent in estate planning. Not only are the laws complex, but a mistake also be extremely expensive."
Q. For those who cannot afford the premiums for long-term care insurance, but who can afford even less the services of a long-term care facility, are there any tax benefits to owning a long-term care policy that might help subsidize the premiums?
A. "Long-term care premiums are deductible as a medical expense (subject to the 7.5 percent-of-AGI floor), although there are limits to the deduction based on the taxpayer's age. For example, a taxpayer between ages 61 and 70 may deduct as much as $3,080 in 2008, if each spouse pays premiums on qualified long-term care policies. Payments in excess of any LTC benefits may be deducted as medical expenses.
Q. Are there any tax breaks for grandparents who want to help with grandchildren's college costs?
A. "One possibility"...is "to contribute to (or established) Section 529 accounts for your children. These tax-advantaged accounts allow distributions that are tax-free if used for ‘qualified' education expenses, such as tuition, fees, and room and board. You can contribute to their accounts as gifts. You also can ‘front load' a 529 account. Normally, if you give more than $13,000 to one individual during the year, you need to file a gift tax return on the excess over the $13,000 exclusion, which has gift tax implications. However, you may contribute as much as the annual exclusion for five years in a single contribution (if you have the funds to do this)-or $65,000-without any gift tax implications. Finally, if you have a grandchild already attending college, you may pay that individual's college tuition without any dollar limit if you pay the institution directly. If you give the funds to your grandchild to pay tuition or if you are reimbursing the tuition already paid, this option is not available."
Scott a. Olson added a comment to the blog, stating that "self-employed persons and their spouses can deduct much, if not all, of long term care insurance premiums off the top of their income under the self-employed health insurance deductions." For more information, go to http://www.ltcinsuranceshopper.com.
Primary source: given above, with website. Additional information regarding long-term care insurance premium deductions: http://www.aaltci.org.