Tax planning advice


Thinking outside the box or maybe thinking inside the right box is required when it comes to taxes and tax planning. There are constant changes to the laws and we must constantly be aware of them. A father-daughter team [the author’s father is Larry B Parness, CPA, PFS, MST, MBA], we are particularly interested in some of these latest developments.

1. Cord Blood Banking: Medical Deduction, Charitable Deduction or Neither?

As an expectant mom in 2014, I have been looking into umbilical cord blood banking, either privately or publically through a donation center. And then, as a financial professional, I have been thinking about the deductibility of this cost as either a medical expense or charitable contribution. Interestingly, so have others.

In April 2011 and then again in December 2013, the “Family Cord Blood Banking Act” (H.R. 1614 and 3673) was introduced in the House of Representatives. While no further action has been taken, this act would amend Section 213(d) of the IRS Code to add cord blood banking services as a qualified medical expense. This would allow individuals to use tax advantaged dollars to pay for cord blood banking services through flexible spending accounts (FSAs), health savings accounts (HSAs), health reimbursement arrangements (HRAs), or the medical expenses tax deduction.

According to IRS Information Letter INFO 2010-0017, one point of contention is whether the cord blood is being banked to treat an existing/imminently probable disease or as a precaution to treat a disease that might possibly develop in the future. The former would qualify, while the latter does not satisfy the existing legal standard that, at a minimum, a disease must be imminently probable. However, in layperson’s terms, you may be able to avoid paying taxes on the money spent for the procedure.

2. Gifting to Grandchildren: Changing Opportunities as Federal Estate Tax Regulations Change

My father, as a current zadie of two grandchildren and an expectant zadie of one more, has been looking at estate and gift planning. The American Taxpayer Relief Act of 2012 (ATRA) provides substantial estate tax relief and increased certainty. It retains the $5.12 million exemptions of 2012, indexing them for inflation. It has also made the portability provision permanent.

So, many of us might think that an estate plan review is not necessary. Not so. Changes related to personal circumstances, such as new grandchildren, may require estate plan changes. State estate tax amounts that have different exemption amounts than the federal can also have a significant impact.

Maybe some changing regulations, such as tax changes regarding the same sex marriages, home office expenses or the Affordable Care Act personally interest you? Having a professional tax consultant can be a most advantageous asset to your tax filing experience.

NIKKI M. PARNESS, CFP®, MBA is a partner at Larry B. Parness, a full-service accounting firm provid-ing business and individual consulting and all aspects of tax planning.