Latest news with #AmericanInstituteofCPAs
Mint
a day ago
- Business
- Mint
A health crisis cost you a bundle. How to claw it back.
The medical tax deduction comes into play after a health crisis like a car accident or a cancer diagnosis, allowing you to write off some unreimbursed costs. Taxes aren't a priority when you are facing a health crisis. But once you recover, don't miss a valuable tax break called the medical tax deduction that could alleviate the emergency's financial toll—an oversight that happens all too often. Taxpayers 50 and over missed out on almost 40% in savings from this deduction, a recent analysis found. Nearly one in five failed to deduct $4,714 on average. Americans undergoing a major medical event or relying on assisted care at home or in a facility should put the deduction on their radar, tax experts say. Keeping detailed records through the year is key. 'Make sure you've got proof of payment for any out-of-pocket cost, everything to support that deduction," said Henry Grzes, lead manager for tax practice and ethics with the American Institute of CPAs. Taxpayers are allowed to deduct unreimbursed medical expenses for themselves, their spouse or their dependents if the costs total more than 7.5% of their adjusted gross income, or AGI. Only medical costs above that 7.5% threshold are deductible. For instance, if your AGI is $100,000, then 7.5% of that is $7,500. If your out-of-pocket medical costs total $7,000, nothing is deductible. But if those expenses added up to $12,000, then $4,500 of that can be written off. You must itemize to receive the benefit. 'If you choose the standard deduction, you don't get anything," Grzes said. Older households deduct about a quarter of their medical spending, the study last year found. That is just half of the medical costs eligible for the deduction. The analysis was based on data before the standard deduction was doubled in 2018, which could make the medical expense deduction less attractive. But out-of-pocket spending has jumped since the end of the pandemic and aging boomers are entering their costliest health years, potentially making the deduction beneficial for more taxpayers. One reason why people fail to take the deduction is because its benefit doesn't seem large enough to justify the work that goes into claiming it. 'It's more for people where it seems there's a higher return to claiming it, say, because you live in a high tax state," said Gopi Shah Goda, author of the study and a senior fellow at Brookings Institution. 'So for every dollar you deduct, you get a higher share of that dollar back in tax savings." Other folks aren't aware of the deduction or how to use it. Generally, taxpayers are often on 'autopilot," said Andy Phillips, vice president at the Tax Institute at H&R Block. There are various times when you should consider the deduction. The most obvious is after a catastrophic health event, such as a car accident or a cancer diagnosis. You can write off unreimbursed costs related to your hospital stay, follow-up doctor or treatment visits, and rehab or physical therapy. If you need to modify your home to accommodate a wheelchair, whatever isn't reimbursed can also be deducted. 'Same thing with transportation. You get a rate per mile," Grzes said. 'Say you're in a small rural community and you have to go to the Cleveland Clinic for some special treatment, that would be deductible." Another time to consider the deduction is if you or your spouse rely on assisted care, whether in home or at a facility. If a full-care facility is required for health reasons, its full cost, including meals and transportation, would be eligible for the deduction. If health isn't the primary reason you are living in an assisted-care home, then only the medical component of those costs are deductible. The facility itself typically provides a breakdown of what charges are attributed to medical care, Grze said. A taxpayer who teeters between itemizing and taking the standard deduction from year to year may want to check out the medical expense deduction. Adding in eligible medical costs to other deductions—like charitable donations or mortgage interest—may make itemizing the better option. Married couples who typically file jointly might find the deduction worthwhile if one spouse earns a lot less than the other, Phillips said. If the lower-earning spouse has large unreimbursed medical expenses during the year, filing separately as a married couple may be beneficial. 'This one is tricky, it's not one to do in a vacuum," he said. 'The challenge is you've got to run the math both ways." The biggest hassle to taking the deduction is to make sure you have the documentation to back it up. This can become complicated because your insurance may pick up some of those medical bills. Only the uncovered portion is deductible. Typically insurers send an explanation of benefits showing how much was charged by the medical provider, how much the insurer paid, and the amount you must pay. Keep that along with a receipt, bank or credit-card statement showing you paid that out-of-pocket amount. If you have a regular accountant, contact him or her after the medical event. Your accountant can help plan for the next tax season and advise what documents to send. If you do your taxes yourself you may want to seek out an accountant for a midyear consultation on how your medical expenses may affect your taxes. Phillips said: 'Don't leave it to chance." Write to editors@
Yahoo
02-06-2025
- Business
- Yahoo
How sports betting taxes work and what you might owe
Sports betting only became legal in the United States in 2018 after the U.S. Supreme Court struck down a 1992 federal ban and ruled that states could individually determine what forms of gambling were legal within their boundaries. This opened the floodgates for various state legislatures to decide whether to allow sports betting. Currently, 40 states and the District of Columbia authorize the practice, and 34 permit online sports betting, according to the American Gaming Association. This has tax implications for millions of gamblers — who are also taxpayers. There is no ambiguity here, according to tax experts. 'Broadly, winnings from sports betting are taxable income,' said April Walker, senior manager for Tax Practice and Ethics with the American Institute of CPAs. Sports betting winnings are taxed under the Internal Revenue Service's designation for gambling income and losses. If your winnings total $600 or more and are at least 300 times the amount wagered, then a payer, such as a casino, is required to issue you a Form W-2G. While supplying the form is the responsibility of the payer, Walker noted, you are still liable for reporting and ensuring taxes are paid on those sports betting winnings, whether or not you receive the form. If you're dealing with a mobile sports gambling provider, like DraftKings or FanDuel, the reporting standards are a little different, according to New England-based accounting firm Baker Newman Noyes. If you reach net earnings above $600 or 300 times your original wager, you can also receive a Form 1099-MISC from an online sports wagering organization that will report your net earnings from the previous tax year. Net earnings would be calculated as your cash winnings minus any cash entry fees and adding any cash bonuses received from the platform. Individual tax filers must report total gambling income as 'Other income: gambling' on line 8b of Schedule 1, 1040. The only exception is if you are filing as a professional gambler, meaning someone 'engaged in sports betting primarily for profit rather than only as a hobby,' per the Journal of Financial Planning. In this case, the filer would use Form 1040, Schedule C to report profit or loss from a business, and they would note winnings as revenue and be able to deduct their losses directly. Self-employed filers — in this case, professional gamblers — must pay self-employment tax, which is 15.3 percent, half of which is subject to deduction, for Social Security and Medicare. This embedded content is not available in your region. To answer the tax rate question, we must work backward. Taxpayers whose winnings exceed $5,000 and 300 times the amount wagered will automatically have 24% of their total payout withheld by the payer, according to Walker. This rate could be higher in states that have additional income tax, in which case the 24% federal rate would be withheld on top of the state's personal income tax rate. Still, when it comes time to file your income taxes, this withholding doesn't ensure you've paid the required amount of tax. Rates range from 10% to 37%, depending on your total income, so based on what tax bracket you end up in at the end of the tax year, you'll either get a refund or have to pay out a higher amount from your winnings. Read more: How tax withholding works Perhaps the most pivotal — and confusing — part of understanding how to report gambling income on your federal income tax return is factoring in your losses. The correct method, according to Walker, comes down to what the IRS refers to as 'sessions.' This philosophy comes from a 2015 IRS notice on slot machine play, indicating that total wins and losses need to be calculated by the day they were made. Each day counts as an individual session, so rather than net your total losses against your total winnings, you will need to calculate the end amount of each session, or day, and determine which days were a loss and which days ended with winnings. Still, the only way that losses can be offset against gambling winnings is if you itemize your deductions rather than take the standard deduction, which is $15,000 for single tax filers on 2025 taxes. Using the session method, you could add your total losses on Schedule A, line 16 as gambling losses. Whether you can itemize your deductions to offset your winnings when it comes to state income tax depends on which state you're filing in. Nine states, including North Carolina, Connecticut, and Rhode Island, do not allow itemized deductions for gambling losses, per an article in the Journal of Financial Planning. Even professional gamblers can only offset their total winnings with their losses and get to zero. There is no tax refund for losses that exceed the total amount of winnings, Walker said. To minimize sports betting taxes, the key is having a demonstrable record of all of your wagers, where and when they occurred, proof that they occurred (like receipts and tickets), and evidence of your total amount of winnings and losses. This will be particularly useful if you find yourself audited by a tax authority. 'Gambling has been around for quite a while, and so the rules on that have not changed,' Walker said. 'The difference is that there might be more people who are doing it on a regular, daily basis, and I would encourage them to understand how important it is to do their bookkeeping so they are not having to scramble after the fact and if they are able to itemize, and take advantage of all of their losses.'
Yahoo
30-05-2025
- Business
- Yahoo
AICPA opposes limitations on tax deductions
The American Institute of CPAs (AICPA) has reiterated its stance against the proposed limitations on state and local tax (SALT) deductions for specified service trades or businesses (SSTBs) in the One Big Beautiful Bill Act. The body sent a second letter to the Senate Finance and House Ways & Means Committees highlighting the need for modifications to the 'troubling' tax proposals. In the letter, the AICPA said: 'We are sensitive to the challenges in drafting a budget reconciliation bill that permanently extends tax provisions, enhances tax administrability, and balances the interests of individual and business taxpayers. 'While we support portions of the legislation, we do have significant concerns regarding several provisions in the bill, including one which threatens to severely limit the deductibility of SALT by certain businesses. This outcome is contrary to the intentions of the One Big Beautiful Bill Act, which is to strengthen small businesses and enhance small business relief.' The AICPA called for an allowance for business entities, including SSTBs, to deduct SALT paid or accrued in trade or business activities. This move aligns with the Tax Cuts & Jobs Act's original intent and has been sanctioned by the Internal Revenue Service. The current House version of the bill is criticised for unfairly targeting SSTBs by restricting their SALT deduction capabilities. The AICPA also addressed the risks of contingent fee arrangements in tax preparation, suggesting they could lead to abuse. They recommended removing an amendment that could permanently disallow business losses without offsetting business income. The letter warned against laws that financially harm businesses and discourage professional service-based business formation. The AICPA supported provisions in the bill, such as using section 529 plan funds for credential expenses, tax relief for natural disaster-affected individuals and businesses, and making the qualified business income deduction permanent. They also advocated for the preservation of the cash method of accounting and increasing the Form 1099-K reporting threshold. In addition, the AICPA endorsed permanent extensions of international tax rates and provisions that offer greater certainty and clarity. It also shared a list of endorsed legislation, principles of good tax policy, and a compendium of proposals for simplifying and technically amending the Internal Revenue Code. AICPA Tax Policy & Advocacy vice-president Melanie Lauridsen said: 'While we are grateful to Congress for many provisions in this bill, the unfair targeting of certain types of businesses creates inefficiencies in business decision-making and could result in negative, long-lasting impacts on the economy. 'We hope that Congress will consider our recommendations and make the necessary changes that will create parity between all businesses.' Earlier in May 2025, the AICPA submitted comments to the US Department of the Treasury and the Internal Revenue Service on proposed regulations concerning previously taxed earnings and profits and related basis adjustments. "AICPA opposes limitations on tax deductions" was originally created and published by The Accountant, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
17-04-2025
- Business
- Yahoo
AICPA supports bill for STEM recognition
The American Institute of CPAs (AICPA) has expressed 'strong' support for bipartisan legislation that seeks to recognise accounting as a career pathway within Science, Technology, Engineering, and Mathematics (STEM). The bill, known as the Accounting STEM Pursuit Act, was introduced by Representatives Young Kim and Haley Stevens. It seeks to allow K-12 grant funding to be utilised for accounting education, with a focus on improving access for underrepresented students. AICPA said this legislation is designed to ensure that future leaders in accounting are 'highly' skilled and prepared to cater to the developing needs. As technology has advanced, the accounting profession has evolved, incorporating digital tools that automate and enhance traditional tasks, the institute added. The shift is said to have paved the way for more 'creative' responsibilities, including tasks like analysing data, providing strategic business insights, and identifying fraudulent activities Accountants now use predictive modelling to assist clients in making decisions. By applying mathematical expertise and harnessing emerging technologies to solve complex problems, accountants support communities and building confidence in financial markets. AICPA noted mastery of new technologies and innovative solutions are essential for accounting professionals to meet the demands of the global economy. Recognising accounting as a STEM field at the K-12 level, along with the potential use of existing STEM federal funding for accounting education, will affirm the profession's capability to navigate today's technological business environment. This initiative aims to expose a broader range of students to potential careers in accounting, thereby strengthening the profession's pipeline. AICPA CEO of public accounting Susan Coffey said: 'For years, STEM curriculum has been a driving force in our education system, providing students with the education needed to develop critical skills that will allow them to compete in a global economy. Accounting has always embodied the values of STEM education, and we believe now is the time to recognise accounting as a STEM curriculum. 'STEM recognition for accounting will help expose students from all backgrounds to the profession, strengthen the accounting pipeline and provide increased opportunities for students in various communities. We thank Representatives Kim and Stevens for their leadership and dedication on this issue and urge members of Congress to support this legislation.' Earlier in April 2025, AICPA also expressed support for four bipartisan bills aimed at enhancing transparency and fairness for taxpayers. Among them, the Electronic Filing and Payment Fairness Act proposes applying the 'mailbox rule' to electronic tax submissions, allowing the IRS to acknowledge electronic payments and documents on the submission date rather than when they are received or reviewed. "AICPA supports bill for STEM recognition" was originally created and published by The Accountant, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site.
Yahoo
05-04-2025
- Business
- Yahoo
Haven't filed your taxes yet? Here are the pros and cons of filing a tax extension
If you're scrambling to file your taxes before the deadline, you're not alone. Each year, millions of Americans request a tax extension, which gives you an extra six months to file your return to the IRS. A valid tax extension moves your filing due date from April 15 to October 15. More than 20 million taxpayers filed for an extension in 2024, according to IRS estimates. In fact, it might even make sense to file an extension if you expect to file your return on time. 'You should consider filing an extension as part of your tax routine, especially if you have a complicated tax situation or might need more time waiting on tax forms, such as a Schedule K-1,' says Atiya Brown, a certified public accountant and owner of The Savvy Accountant in Mansfield, Texas. But if you might need your 2024 tax return for other reasons, those deadlines should be taken into account when deciding whether to file an extension. 'Be sure to consider external deadlines, such as financial aid applications or bank requirements, where a tax return may be needed. This could be a case where filing by April 15 is needed,' says April Walker, lead manager for tax practice and ethics with the American Institute of CPAs in Raleigh, N.C. Here are the pros and cons of filing a tax extension this tax season. Filing for a tax extension gives you more time to file your taxes. Instead of rushing to meet the April 15 tax deadline, taxpayers can take until October 15 to complete their tax returns. 'If information is missing or there are circumstances that are not conducive to gathering all of the data needed to file a complete and accurate return, filing an extension is often less expensive than rushing to file and then determining an amended return is needed later,' Walker says. Although tax extensions typically apply to federal tax returns, state requirements vary. Some states automatically grant additional time if a federal extension is filed timely, while others may require a separate state filing. Learn more: See your state's income tax and sales tax rates Keep in mind that filing a tax extension only gives you more time to file your tax return — it doesn't give you more time to pay your tax bill (more on this in the 'cons' section, below). Filing a tax extension can also extend the funding period for some retirement plans. In some cases, the additional time to fund retirement plans can help with cash flow planning, Walker says. If you own a business and want to fund a SEP IRA, the IRS allows you to do so by the extended due date of your business taxes. Business owners can contribute up to $69,000 to a SEP IRA in 2024 and $70,000 in 2025. Sole proprietors who report their income and expenses on Schedule C and file a valid tax extension will have until Oct. 15, 2025, to contribute to their SEP-IRA for the 2024 tax year. Note, however, that the extended due date varies depending on how the business files its tax return. Keep in mind that a tax extension does not extend the deadline for funding an individual retirement account (IRA). The deadline to contribute to a traditional or Roth IRA for the 2024 tax year is April 15, 2025. Learn more: Roth IRA rules you should know during tax season Filing an extension prevents the IRS from imposing the costly failure-to-file penalty, which is assessed if you fail to file your tax return by the deadline. The failure-to-file penalty is a hefty 5 percent of your unpaid taxes every month, up to a maximum penalty of 25 percent. While a tax extension does protect you from failure-to-file penalties, you'll still face failure-to-pay penalties and interest on any unpaid taxes until the balance is paid in full. The failure-to-pay penalty, however, is 0.5 percent of the unpaid balance every month — much lower than the failure-to-file penalty. Learn more: Can't pay your taxes? 4 ways to avoid major penalties While an extension gives you more time to file, it doesn't give you more time to pay. Any taxes owed must be paid by the original due date, generally April 15, to avoid potential late payment penalties and interest. 'If you owe, you should pay with your extension filing. Doing so will reduce or eliminate any interest and penalties you incur as those are calculated based on the original filing deadline date,' Brown says. If you're not sure what you owe, you have this option: Pay 100 percent of your 2023 tax bill — or 110 percent of your 2023 tax bill if your adjusted gross income was $150,000 or more ($75,000 or more if you filed using the married filing separately tax status). If you pay that amount by the April 15 deadline, then no matter what your 2024 tax bill ultimately ends up being, you won't owe underpayment penalties. Or, if you prefer, there's a different safe harbor: Pay 90 percent of your 2024 tax bill by April 15 — that's also a way to make sure you avoid underpayment penalties. One major drawback of filing a tax extension is that taxpayers expecting a refund must wait longer to receive it. Due to the recent IRS employee layoffs and the Trump administration's plan to slash even more IRS staff, some experts say that taxpayers who expect to receive a tax refund should file as soon as possible. That said, tax professionals haven't reported widespread processing delays. 'Despite the IRS staffing reductions, my clients haven't experienced unnecessary refund delays,' Brown says. 'However, I always encourage my clients to file their returns as quickly as possible if they want timely refunds.' Learn more: Tax refund schedule: How long it takes to get your tax refund While filing a valid tax extension provides more time to submit your tax return, it can also cause you to procrastinate even more. The extra time may cause some taxpayers to delay gathering their tax documents, and to push their tax returns further down the 'to-do' list. But if you file a tax extension, it's a good idea to start gathering your tax documents sooner rather than later and think about the best way to file — whether using tax software, a tax preparer or one of these five ways to file your taxes for free — to meet your new tax deadline. Failing to file by the extended deadline may result in additional penalties. Need an advisor? Need expert guidance when it comes to managing your money? Bankrate's AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals. Learn more: A checklist of tax documents you'll need to file your tax return Filing a tax extension is easy and free. You can file an extension online or by mail. Either way, you want to use Form 4868. You can file Form 4868 in a few different ways: For free, using IRS Free File online. Even if your income makes you ineligible to use Free File to file your tax return, you can still use Free File to file an extension for free. Through a tax professional, such as a certified public accountant or enrolled agent. By snail mail. The IRS considers the extension valid as long as the form is postmarked by the due date, April 15, 2025. It's wise to send your Form 4868 by certified mail to have proof of submission.
