Tax Law Blog | IRS Tax Attorneys

Ever make a personal call on your company cell phone? Did you record the value of that call as taxable income, as required by law?

Join the club, but don’t worry. President Barack Obama will propose repealing the widely ignored requirement as part of his 2011 budget plan, a Treasury Department official said Saturday.

The administration made a similar proposal in June, and it was well received in Congress. Lawmakers, however, became preoccupied by the health care debate for much of the year and a lot of their work on tax law was delayed.

Obama is scheduled to release his proposed tax and spending plan on Monday. If the cell phone tax is repealed this year, taxpayers would be off the hook for all of 2010, said the official, who spoke on condition of anonymity because the budget had not yet been released.

A 1989 law says that personal use of a company cell phone should be taxed like other fringe benefits, such as a company car. The law, however, was passed when cell phones were referred to as car phones and were considered a luxury. Today, workers increasingly use company-issued mobile devices for texting, e-mailing and browsing the Internet — sometimes for work, sometimes for personal use.

Last summer, the Internal Revenue Service issued a request for comments on ways to improve compliance with the tax, and there was such a backlash that the administration proposed repealing it.

At the time, IRS Commissioner Doug Shulman said the tax was “poorly understood by taxpayers” and acknowledged it was difficult to enforce consistently.

Some employers have faced big tax bills after failing to comply with the law.

In 2008, the IRS audited two University of California branches, in Los Angeles and San Diego. As part of a settlement, UCLA paid a tax assessment of $238,474 and San Diego paid $186,471.

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People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service.

Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.

“Americans have opened their hearts to help those affected by the Haiti earthquake,” said IRS Commissioner Doug Shulman.” This new law provides an immediate tax benefit for the many taxpayers who have made generous donations.”

Taxpayers can benefit from their donations, almost immediately, by filing their 2009 returns early, filing electronically and choosing direct deposit. Refunds take as few as ten days and can be directly deposited into a savings, checking or brokerage account, or used to purchase Series I U.S. savings bonds.

The new law only applies to cash (as opposed to property) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.

To get a tax benefit, taxpayers must itemize their deductions on Schedule A. Those who claim the standard deduction, including all short-form filers, are not eligible.

Taxpayers should be sure their contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on IRS.gov under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov. Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID.

The IRS reminds donors that contributions to foreign organizations generally are not deductible. IRS Publication 526, Charitable Contributions, provides information on making contributions to charities.

Federal law requires that taxpayers keep a record of any deductible donations they make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution. Publication 526 has further details on the recordkeeping rules for cash contributions.

This year’s special Haiti relief provision is modeled on a 2005 law that, in the wake of the Dec. 26, 2004, Indian Ocean tsunami, allowed taxpayers to deduct donations they made during January 2005 as if they made the donations in 2004.

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The home mortgage interest deduction is probably the single most sacred provision in the Internal Revenue Code. I remember when, in 1986, Congress flirted briefly with the idea of repealing it. The secretaries at my law firm – normally an apolitical bunch – marched through the halls yelling revolutionary slogans. Congress backed down the next day.

So I’m taking a bit of a risk suggesting that the home mortgage interest deduction and other tax subsidies for home ownership may be a bad idea.

First, an important but nonobvious point. Economists agree that home buyers do not actually receive any net financial benefit from such subsidies. In the long run, home buyers would be just as well off financially if the subsidies were eliminated.

What!! How could this possibly be true?

Because home ownership is tax-advantaged, economists tell us that buyers are forced to pay more for homes than they otherwise would. Indeed, tax subsidies should cause housing prices to rise to the point where the new home buyer gets no net subsidy at all. Economists say that such subsidies are “internalized” in housing prices.

As a practical matter, what this means is that if tax subsidies for home ownership were eliminated, we’d all pay less for our housing – substantially less. More affordable homes. Lower home mortgages. Fewer financial eggs in a single basket. Less risk of financial catastrophe, either individual or nation-wide.
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If you are unsure of what medical expenses you can deduct on your taxes check out this great list from the tax girl:

1, Abortion
2, Acupuncture
3, Alcoholism treatment
4, Ambulance service
5, Artificial Limb
6, Artificial Teeth
7, Bandages
8, Breast Reconstruction Surgery (following a mastectomy for cancer)
9, Birth Control Pills
10, Braille Books and Magazines
11, Capital Expenses for home improvements and modifications if their main purpose is medical care.
12, Car modifications for persons with a disability.
13, Chiropractor
14, Christian Science Practitioner (whew, good for Tom Cruise, Katie Holmes and Suri, no?)
15, Contact Lenses
16, Crutches (buy or rent)
17, Dental Treatment (X-rays, fillings, braces, extractions and dentures but not teeth whitening)
18, Diagnostic Devices (such as glucometers)
19, Drug Addiction Treatment (so, Lindsay Lohan gets a break)
20, Drugs - the prescription kind
21, Eyeglasses
22, Eye Examinations
23, Eye Surgery
24, Fertility Enhancement (including in vitro fertilization)
25, Guide Dog or Other Animal for persons with disabilities
26, Health Maintenance Organization (HMO) payments
27, Hearing Aids (including batteries)
28, Home Health Care
29, Hospital Services
30, Insurance Premiums
31, Laboratory Fees
32, Lead-Based Paint Removal from your home (scraping is okay, repainting is not deductible)
33, Legal Fees (only for authorization of treatment for mental illness)
34, Lifetime Care—Advance Payments
35, Lodging for medical care
36, Long-Term Care premiums
37, Qualified Long-Term Care Services
38, Qualified Long-Term Care Insurance Contracts (note that there are limits)
39, Medical Conferences primarily for and necessary for medical care
40, Medical Information Plan
41, Medicines (prescribed only - except for insulin which need not be prescribed)
42, Nursing Home (medical care - not for lodging or personal care)
43, Nursing Services
44, Operations if medically necessary (elective cosmetic surgery is not deductible - poor Joan Rivers)
45, Optometrist
46, Organ Donations and Transplants
47, Osteopath
48, Oxygen
49, Psychiatric Care
50, Psychoanalysis
51, Psychologist
52, Special Education for children with disabilities
53, Stop-Smoking Programs (does not include nicotine gum or patches)
54, Surgery
55, Telephone equipment for hearing impaired (includes TTY and TDD equipment)
56, Television equipment for hearing impaired
57, Therapy
58, Transportation (includes bus, taxi, train, or plane fares or ambulance service for patients, parents and nurses)
59, Trips (if the trip is primarily for, and essential to, receiving medical services)
60, Vasectomy
61, Vision Correction Surgery
62, Weight-Loss Program (only for a specific disease diagnosed by a physician)
63, Wheelchair
64, Wig (upon the advice of a physician for the mental health of a patient who has lost all of his or her hair from disease)
65, X-ray

So what’s NOT deductible?

1, Baby Sitting, Childcare, and Nursing Services for a Normal, Healthy Baby
2, Controlled Substances (no tax deduction for buying pot)
3, Cosmetic Surgery which is elective
4, Dancing Lessons, even if for improving health (so sorry, Marie Osmond)
5, Diapers or Diaper Service
6, Electrolysis or Hair Removal
7, Funeral Expenses
8, Hair Transplant
9, Health Club Dues
10, Household Help, even if recommended by a doctor
11, Illegal Operations and Treatments
12, Insurance Premiums
13, Maternity Clothes
14, Medicines and Drugs From Other Countries (including Canada and Mexico)
15, Nonprescription Drugs and Medicines
16, Nutritional Supplements such as vitamins unless they are recommended by a medical professional for a specific medical condition
17, Personal Use Items such as toothpaste and tampons
18, Swimming Lessons, even if for improving health
19, Teeth Whitening
20, Weight-Loss Program unless it is a treatment for a specific disease diagnosed by a physician (Valerie Bertinelli and Kirstie Alley are both out of luck)

Hope this helped you! From the Tax Girl