The Internal Revenue Service allows individuals and business to make some tax deductions on their annual andperiodical remittal tax. The federal tax returndeductions allowable are itemized and standard deductions.The Internal Revenue Service sets the standard deduction (Rueben and Kirk 85-89). It reduces the individual’s tax payable,and it consists of the basic standard deduction plus any other standard deduction for blindness or age. This deduction is adjusted annual to factor in inflation and it varies depending on individual’s filing status. On the other hand, the itemized deductions are made for specific items like medical expenses. A person is not entitled to the standard deduction when he/she applies for itemized deductions (Yetman and Robert 443). As such, itemized deduction should only be applied for when it exceeds the standard deduction.
Evaluation of the Position Taken By Ruby and Internal Revenue Service (IRS)
The Internal Revenue Serviceallows for deduction of medical expenses Real estate taxes paid. Schedule A (Form 1040) of income, tax return enlists the itemized deductions that are allowable. The medical expenses are defined as the costs of cure, diagnosis, prevention, or treatment of a disease and the costs incurred in the treatment of any function or part of the body (Internal Revenue Service 98-102). The medical expenses include payment for medical services rendered by a dentist, surgeon, physician, or any other medical practitioner. However, these expenses are limited to only those that are related to alleviating mental or physical illness and not does not cover those that a beneficial to health (Hoffmanet el 1047).
With regard to this definition of medical expense deduction, Ruby was entitled to the deduction. One is supposed to make medical deduction for the medical expenses paid in a given year regardless of the period in which the services were provided (Yetman and Robert 564). The federal Revenue service allows a person to deduct the amount of dental or medical expenses, which is more than 10% of the person’s Annual Gross Income (AGI) or 7.5% of one’s Annual Gross Income in a situation where one is aged 65 years or older(Internal Revenue Service 104). As such, Ruby would have made have calculated 7.5% deduction id she was aged 65 or above. Ruby was also entitledto receiving the deductions on the real estate tax paid.
In spite of this, the Internal Revenue Service allows individuals to make both real estate tax paid deduction and medical deduction for the expenses that they have incurred and paid for (Poterba and Arturo 78-89). The authority allows an individual to make the deductions that are paid for themselves and their spouses. It also allows the medical deductions for the amount paid on behalf of the qualifying child, spouse, qualifying relative and other dependants. A qualifying child can be a child who is ones daughter or son, a child who has lived with you for more than half of the year and cannot be able to meet half of his returns (Internal Revenue Service 107-112). On the other hand, a qualifying relative is one who is supported by the person paying the medical bill atleast with half support.
This indicates that Ruby cannot be considered as a qualifying child of her mother. She is not depending on her mother for more than half of the support she needs. The Internal Revenue Service cannot allow the amount paid to be deducted from her mother’sincome tax returns because her mother did not cater for more than half of her upkeep during the year. Ruby received a gross income of $100000, which is more than $ $3,900 that is allowed for tax deduction of the helping person (Feldstein 754). This indicates that the revenue authority could not deduct this money from her mother’s tax return.
Given that, Ruby was the one who incurred the real estate and the medical expenseshe was entitled to getting the medical and real estate deduction. The essence of giving a tax deduction to an individual is to prevent making a person double pay or in other cases is used as a policy of improving social health welfare. Ruby did not bear the burden of paying for the expenses, although he was the one who incurred them(Feldstein 987). Her mother carried the burden on behalf of Ruby. As such, giving Ruby a tax deduction will benefit her against the tenor and spirit of the tax deduction policy, which aims at reimbursing rather than benefiting. As such, even though the amount of money paid could not be deducted by Ruby’s mother from tax return, Ruby could also not deduct the amount.
The Internal Revenue Service was right on dis-allowing Ruby from making the tax deductions. This is the case, despite the contentious issue with regard to the fact that the internal Revenue Service should not be concerned much with the payment arrangement of ones expenses. However, the intent of issuing tax deductions is to reimburse the person who bears the burden of catering for medical expenses or giving a refund of the real estate tax paid.
Feldstein, Martin S. Raising Revenue by Limiting Tax Expenditures. No. w20672. National Bureau of Economic Research, 2014.
Hoffman, William, et al. South-Western Federal Taxation 2014: Corporations, Partnerships, Estates and Trusts. Cengage Learning, 2013.
Internal Revenue Service, “Certain Cash Contributions for Typhoon Haiyan Relief Effortsin the Philippines Can Be Deducted on Your 2013 Tax Return” 2013: online < http://www.irs.gov/pub/irs-pdf/f1040sa.pdf>
Poterba, James M., and Arturo Ramírez Verdugo. “Portfolio Substitution and the Revenue Cost of the Federal Income Tax Exemption for State and Local Government Bonds.” (2011).
Rueben, Kim, and Kirk Stark. Federal Tax Reform and the Deduction for State and Local Taxes. Tax Policy Center Working Paper, 2012.
Yetman, Michelle H., and Robert J. Yetman. “How Does the Incentive Effect of the Charitable Deduction Vary across Charities?” The Accounting Review 88.3 (2012): 1069-1094.