Q: I am an elementary school teacher. What is the maximum deduction that I can make on my 2021 tax return?
AN: The maximum deduction is $250 in 2021. A tax credit is more valuable than a tax deduction. Due to the pandemic, face masks, hand sanitizer, disposable gloves and air purifiers are legitimate expenses for teachers. All unrefunded expenses are eligible for the $250 tax credit.
Q: What is the maximum that a person can receive from an inheritance without being taxed?
AN: If the estate has paid the estate taxes, the beneficiary can receive any amount without paying taxes. A beneficiary can receive $11.7 million tax-free because the asset exemption is $11.7 million in 2021. If the beneficiary receives qualified assets (401(k), 403(b), IRA) or an annuity, the beneficiary will pay ordinary income taxes on the taxable amounts of those assets. In general, most inheritances are tax-free for the beneficiaries.
Q: I inherited a house from my father who passed away three months ago. My father bought the house about 20 years ago for $125,000 and the market value is $455,000. Do I have to pay taxes on the profit of $330,000?
AN: No, you get a tiered cost basis based on the market value on the day of death. The increased cost base will be close to $455,000 and after you factor in the cost of sales, you may even be at a loss. You must complete Schedule D when you file your tax return.
Q: What is the full retirement age (FRA) for Social Security benefits?
AN: FRA is the age at which you are entitled to 100% of your Social Security benefits. The FRA used to be 65, but in 1983 Congress passed a law to increase it based on your birthday. For those born between 1943 and 1954, this is 66. And if born in 1955 through 1960, it becomes pro rata 67. Anyone born in 1960 or later has an FRA of 67. For example, if you were born in 1957, then your FRA is 66 plus 6 months. If you claim benefits before your FRA, your monthly payments will be permanently reduced. Spouse and survivor benefits are also reduced if you claim them before reaching your FRA.
Q: If I continue to work after receiving Social Security benefits, how much can I earn before my benefits are affected?
AN: If you are under full retirement age (FRA) and you start collecting Social Security, $1 in benefits will be deducted for every $2 you earn over $18,960 for 2021. In the year you get your FRA When you reach FRA, $1 in benefits is deducted for every $3 you earn over $50,521 until the month you reach FRA. These lost benefits are not permanently lost, they are postponed until you reach your FRA. Your monthly benefit is increased by the deferred benefits.
Q: What are the taxable limits for estates in 2021?
AN: If the estate is less than $11.7 million, there are no estate taxes.
Q: I file a joint return and use the standard deduction. What is the amount I can deduct for charity without using Schedule A?
AN: Each person can deduct $300 for charity. Since you are filing jointly, you can deduct $600.
Q: Are Social Security Benefits Taxable in Michigan?
AN: Social Security benefits are not taxable in Michigan. If some of your Social Security benefits are taxable at the federal level, you can deduct the taxable portion from Michigan’s taxable income.
Q: I have Medicare insurance Part B and D and I am planning a Mediterranean cruise vacation in February. Does my Medicare insurance cover me on the cruise ship and when I visit abroad?
AN: In general, Medicare does not cover you outside of the United States and its territories. Most Medigap insurance plans cover you when you travel to another country. Contact your insurance company to check coverage. If you are not covered, you must take out international travel insurance.
Q: What is a Medicare Advantage Plan?
AN: The Medicare Advantage plan is a health insurance plan that combines Part A, Part B, and Part D. During the open enrollment period October 15 through December 7, you can move your traditional Medicare to a Medicare Advantage Plan or switch Advantage plans. Benefit plans often cost less while offering a wider range of services. Traditional Medicare doesn’t cover dental, vision, and hearing, but Advantage plans do. Another advantage is that many Advantage plans offer coverage abroad, while traditional Medicare does not. A disadvantage of Advantage plans is that you may be limited to a smaller group of providers and medical facilities.
Q: My neighbor said I can change Part D of my Medicare coverage from Oct. 15 to Dec. 7. Why would I change anything?
AN: Part D covers prescriptions and your current coverage may be too expensive or inadequate. Evaluate your current prescriptions and compare Part D plans. Drug coverage may change from year to year, the same medication that is cheap this year may be unaffordable in 2022.
Useful phone numbers for any tax issues:
• IRS Help (800)829-1040 • MI Help (517)636-4486
• IRS Forms (800)829-3676 • MI Forms (517)636-4486
• IRS refund information. (800)829-4477 • MI Refund Info. (517)636-4486
Richard Rysiewski, Certified Financial Planner®, welcomes all questions about tax and financial matters. Please send to Richard Rysiewski, Financial Doctor, 3001 Hartford Lane, Shelby Twp., MI 48316 or call (248) 651-7710.