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I'm a caregiver for my aunt who has MS and had a similar question last year. The key thing the IRS told me is that you need to look at the actual source of the payments. In my state (Oregon), the payments technically come from the Department of Human Services but are funded through a Medicaid waiver program. When I file taxes, I include a statement with my return that says: "I received $XX,XXX in payments under a Medicaid waiver program for care of [name] in my home. These payments are exempt from federal income tax pursuant to IRS Notice 2014-7." This has worked for me for the past two years without any issues. Just make sure your fiancΓ© has documentation showing the payments are from a qualifying program.
Thanks for this specific example! Do you physically mail in that statement or is there a way to include it when filing electronically? We're in California, and the payments are coming through In-Home Supportive Services (IHSS) which I believe is a Medicaid waiver program, but I need to double-check.
When I file electronically, I include that statement in the section for "additional information" or "miscellaneous statements" - most tax software has a place for this. If your software doesn't have that option, you can also mail the statement separately to the IRS after e-filing, with your name, SSN, and tax year clearly marked. California's IHSS is indeed funded through Medicaid (called Medi-Cal in California) and typically qualifies for the difficulty of care exemption. Just make sure your fiancΓ© keeps documentation of the payment source in case of questions later. The program administrators should be able to provide a letter confirming it's a Medicaid waiver program if needed.
I think there's some confusion here. Just because someone lives with you and you're their caregiver DOESNT automatically make the income tax-exempt! My wife is a caregiver for her father and we had to pay taxes on all of it. The exemption depends on who's making the payments and under what program. Some state programs qualify and others don't. You need to check if your specific program is covered under IRS Notice 2014-7, which is what established this exemption.
You're right that it's not automatic, but most Medicaid waiver programs DO qualify. The fact that you had to pay taxes might mean your program wasn't a qualified Medicaid waiver program. Did you check specifically? We were incorrectly paying taxes on exempt income for TWO YEARS before we realized our mistake!
One thing nobody has mentioned is that Section 179 doesn't have to be all-or-nothing. You can choose to take just a portion as Section 179 and depreciate the rest normally. This has helped me with tax planning in my small fabrication shop. For example, last year I bought a CNC machine for $32,000 but only took $20,000 as Section 179 and am depreciating the remaining $12,000. This gave me immediate tax savings while still leaving some depreciation deductions for future years. Might be worth considering in your situation.
That's actually really helpful - I had no idea you could split it up like that! How do you decide what portion to take as Section 179 vs regular depreciation? Is there a formula or rule of thumb?
I basically look at my projected income for the year and figure out how much deduction I need to keep myself in a favorable tax bracket. If taking the full Section 179 would push me too far down or waste the deduction, I'll split it up. For most small businesses, it makes sense to take enough Section 179 to get your income to a target level, then save the rest for future years when you might need the deductions more. Your accountant should be able to model this with your specific numbers. It gives you more flexibility than the all-or-nothing approach most people think is required.
Just a warning from someone who made this mistake - remember that Section 179 requires the equipment to be used more than 50% for business. I took Section 179 on a truck that later became more of a personal vehicle, and got hit with a nasty recapture tax bill. Make sure that mower stays in business use!
Oof, that's rough. How did the IRS find out about the usage change? Did you get audited or was there some kind of reporting requirement I should know about?
Whatever you do, DON'T ignore this. I made that mistake and ended up owing way more in penalties and interest. Face it head-on, even if it's scary.
Thanks for the advice. Yeah, I'm definitely trying to tackle this now before it gets even worse.
Quick question - does anyone know if setting up a payment plan affects your credit score? I'm trying to buy a house soon and I'm worried this might mess that up.
yall ever notice how the irs can find that $50 you forgot to report from 5 years ago, but jeff bezos pays like $0 in taxes? make it make sense π€‘
Facts π― The system is rigged against the little guy
Eat the rich! π½οΈπ°
Angelica Smith
Just to add another perspective - if you're expecting a refund, you have up to 3 years from the original due date to file and still get your money back. So for 2023 taxes, you have until April 15, 2027. After that, you lose your refund. But if you owe money, you should file ASAP to minimize penalties and interest which start accumulating from the original due date (April 15, 2024).
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Jeremiah Brown
β’Thank you so much for mentioning this! I am pretty sure I'll be getting a refund based on my withholding, but I didn't realize there was actually a 3-year window. That takes some pressure off, though I still want to get this done soon. Do you know if the refund amount stays the same over those 3 years, or does it increase with interest or anything?
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Angelica Smith
β’Unfortunately, the IRS doesn't pay interest on refunds if you file late. The refund amount stays exactly the same whether you file on time or 2 years late. That's actually why it's always best to file on time even if you're getting a refund - you're essentially giving the IRS an interest-free loan of your money for however long you delay.
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Logan Greenburg
Has anyone used freetaxusa for late filing specifically? Is there anything special I need to know about using it for late returns? I'm in a similar boat but worried the software might be different somehow for late filers.
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Charlotte Jones
β’I used freetaxusa for a late 2022 return last year. The process is exactly the same as filing on time. The software doesn't change at all - you just select the correct tax year (2023 in your case) and proceed normally. They keep the previous year's software available specifically for late filers.
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