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A contingent beneficiary is a person, estate or trust that receives the assets of a person who dies if the primary beneficiary, for any reason, cannot receive the assets. It is commonly recommended by attorneys when their clients are making a will to have at least one contingent beneficiary. It is possible to have several […]
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You need pre-authorization or a referral
Did you need to undergo a medical procedure such as an MRI or a CT scan? If so, your insurance provider may require a referral or pre-authorization from your physician.
Even if the facility agrees to provide the procedure without a referral or pre-authorization, your insurance provider may not agree to cover the cost. To rectify the situation, see if your doctor can reach out to your insurance carrier and let them know about ordering the procedure for you. (Physicians and other healthcare specialists using services like Fortis Medical Billing may have an easier time working with your insurance carrier.)
Your policy does not cover the procedure
Even with proper pre-authorization or a referral, you must check with your insurance provider or look over your policy to ensure your plan includes the procedure. Even if your carrier previously covered the procedure, your latest plan may not include it.
You used an out-of-network provider
Something else to double-check on your insurance plan is whether the provider you want to see is in your current provider network.
Provider networks are common for exclusive provider organizations and health maintenance organizations. If you do not use an approved provider who agrees to your carrier's payment terms, your insurance carrier may deny your claim. Occasionally, insurance companies will accept a claim from an out-of-network provider, but you may have to pay a higher percentage of the costs than you normally would.
If you want to have the option of using out-of-network providers, ask your current carrier if you can include out-of-network benefits on your current health insurance plan. That way, you receive non-emergency and/or elective treatment.
Your claim contains typos
A clerical error on your part may be the reason for your denial. Check to see whether you listed your birth date, name, address, and all other personal information correctly on your claim. If you notice a typo, reach out to your provider's customer service department to correct it.
Your physician billed the wrong provider
Perhaps the mistake was your doctor's and the wrong insurance carrier received your claim. This sometimes happens if you go to a doctor or another healthcare provider you have not been to in a while. They may have outdated or inaccurate policy information on file.
Do you have multiple health insurance policies? Maybe you and your spouse have separate plans through your employers but see the same physician. If so, your doctor may have sent the bill to your spouse's carrier rather than yours.
If your physician billed the wrong provider, see that the office sends the bill to the right company as soon as possible. Waiting too long could result in a denial because the bill did not arrive on time to qualify for approval.
Your service was not considered medically necessary
Another reason insurance companies deny claims is that they do not feel the requested service qualifies as medically necessary. Even though you may need a procedure, treatment, or service, you may have to make your policy provider understand why you need it.
Team up with your doctor to supply your carrier with adequate evidence of your medical need. Also, ask yourself if you truly need the service to improve your health or if you only want the service for vanity or nonessential reasons.
You did not choose the less-expensive option
Insurance companies are a business, which means they want more money coming in than they do funneling out. If you opt for a more expensive medical option when a less expensive one achieves the desired result, your carrier may deny your claim based on cost-efficiency.
Always choose the less-expensive procedure or treatment first. If results do not work the way your physician would like, then you can see if your provider would cover the more expensive option.
Do not lose hope if your carrier denies your claim. A phone call and the right information could change everything for the better.
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A 55-year-old can expect to pay a long-term care insurance premium of $2,050 per year on average, according to a 2019 price index survey of leading insurers conducted by the American Association for Long-Term Care Insurance (AALTC). That will cover … Continue reading →
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Life insurance is one of the most underestimated types of insurance out there. Here’s a clear way to estimate your needs to protect your family.
Since the coronavirus quarantine began, many people have been forced to work from home. If you didn’t have a home office before the pandemic, you might have had a few expenses to set one up. I’ve received several questions about what benefits are allowed for home offices during the COVID-19 crisis.
One question came in on the QDT coronavirus question page. Money Girl reader Ian said:
"I have a question about next year's taxes and working from home. For the past 13 weeks, I have been forced to work from a home office. (I am a regular W-2 employee, not self-employed.) I have had some expenses come up that were brought about by working from home: a computer upgrade so I can better connect to Wi-Fi, a new router, and even a desk chair so I am comfortable while I work. Should I be keeping track of those expenses? Will they be deductible? My employer is not going to reimburse them. Thank you for your help!"
Another question came from Miki, who used my contact page at Lauradadams.com to reach me. She said:
"Hi, Laura, and thank you for a wonderful podcast! I've been listening for years and have always thought that you'd have a show for any question I could ever think of. But this new situation with COVID-19 has made me think of something that I'm sure many of us are dealing with right now.
"To start working from home, I had to spend quite a bit of money to get my home office on par with my actual office. I know you've done episodes on claiming home office expenses on taxes before, but could you do an episode on whether we can claim home office expenses on our taxes next year? And if we can, things we should start thinking about now (aside from saving the receipts)?"
Thanks for your kind words and thoughtful questions! I'll explain who qualifies for a home office tax deduction and serve up some tips for claiming it.
5 things to know about the home office tax deduction during coronavirus
Here's the detail on five things you should know about qualifying for the home office tax deduction in 2020.
1. COVID-19 has not changed the home office tax law
The CARES Act changed many personal finance rules—including specific tax deadlines, retirement distributions, and federal student loan payments—but the home office tax deduction is not one of them. In a previous post and podcast, Your Guide to Claiming a Legit Home Office Tax Deduction, I covered the fact that the Tax Cuts and Jobs Act (TCJA) of 2017 drastically changed who can claim this valuable deduction.
Before the TCJA, you could claim a home office deduction whether you worked for yourself or for an employer either full- or part-time. Unfortunately, W-2 employees can no longer take advantage of this tax benefit. Now, you must have self-employment income to qualify. My guess is that the IRS was concerned that it was too easy to abuse this benefit and reined it in.
Before the TCJA, you could claim a home office deduction whether you worked for yourself or for an employer either full- or part-time. Unfortunately, W-2 employees can no longer take advantage of this tax benefit.
The best option for an employee is to request expense reimbursement from your current or future employer even though they're not obligated to pay you. If you get pushback, make a list of all your home office expenses so it's clear how much you spent on their behalf. They might consider it for your next cost of living raise or bonus.
Unless Miki or Ian have a side business that they started or will start, before the end of 2020, they won't get deductions to help offset their home office setup costs.
2. The self-employed can claim a home office tax deduction
Let’s say you use a space in a home that you rent or own for business purposes in 2020. There are two pretty straightforward qualifications to qualify for the home office deduction:
- Your home office space must be used regularly and exclusively for business
- Your home office must be the principal place used for business
You could use a spare bedroom or a hallway nook to run your business. You don’t need walls to separate your office, but the space should be distinct—unless you qualify for an exemption, such as running a daycare. It’s permissible to use a separate structure, such as a garage or studio, as your home office if you use it regularly for business.
You must use your home as the primary place you conduct business—even if it’s just for administrative work, such as scheduling and bookkeeping. However, your home doesn’t have to be the only place you work in. For instance, you might work at a coffee shop or meet clients there from time to time and still be eligible for a home office tax deduction.
3. Your business can be full- or part-time to qualify for a home office tax deduction
If you work for yourself in any trade or business, either full- or part-time, and your primary office location is your home, you have a home business. No matter what you call yourself or your business, if you have self-employment income and do any portion of the work at home, you probably have an eligible home office. You might sell goods and services as a small business, freelancer, consultant, independent contractor, or gig worker.
If you work for yourself in any trade or business, either full- or part-time, and your primary office location is your home, you have a home business.
As I previously mentioned, the work you do at home could just be administrative tasks for your business, such as communication, scheduling, invoicing, and recordkeeping. Many types of solopreneurs and trades do most of their work away from home and still qualify for a legitimate home office deduction. These may include gig economy workers, sales reps, and those in the construction industry.
4. You can deduct direct home office expenses for your business
If you run a business from home, your direct home office expenses qualify for a tax deduction. These are costs to set up and maintain your office, such as furnishings, installing a phone line, or painting the walls. These costs are 100% deductible, no matter the size of the office.
5. You can deduct indirect home office expenses for your business
Additionally, you’ll have costs that are related to your office that affect your entire home. For instance, if you’re a renter, the cost of rent, renters insurance, and utilities are examples of indirect expenses. You’d have these expenses even if you didn’t have a home office.
If you own your home, potential indirect expenses typically include mortgage interest, property taxes, home insurance, utilities, and maintenance. You can't deduct the principal portion of your mortgage payment, which is the amount borrowed for the home. Instead, you’re allowed to recover a part of the cost each year through depreciation deductions, using formulas created by the IRS.
Allowable indirect expenses actually turn some of your personal costs into home office business deductions, which is fantastic! They’re partially deductible based on the size of your office as a percentage of your home—unless you use a simplified calculation, which I’ll cover next.
How to calculate your home office tax deduction
If you qualify for the home office deduction, there are two ways you can calculate it: the standard method or the simplified method.
The standard method requires you to keep good records and calculate the percentage of your home used for business. For example, if your home office is 12 feet by 10 feet, that’s 120 square feet. If your entire home is 1,200 square feet, then diving 120 by 1,200 gives you a home office space that’s 10% of your home.
In this example, 10% of your qualifying expenses could be attributed to business use, and the remaining 90% would be for personal use. If your monthly power bill is $100 and 10% of your home qualifies for business use, you can consider $10 of the bill a business expense.
To claim the standard deduction, use Form 8829, Expenses for Business Use of Your Home, to figure out the expenses you can deduct and then file it with Schedule C, Profit or Loss From Business.
The simplified method doesn’t require you to keep any records, which makes it incredibly easy to claim. You can claim $5 per square foot of your office area, up to a maximum of 300 square feet. So, that caps your deduction at $1,500 (300 square feet x $5) per year.
The simplified method requires you to measure your office space and include it on Schedule C. It works best for small home offices, while the standard approach is better when your office is bigger than 300 square feet. You can choose the method that gives you the largest tax break for any year.
No matter which method you choose to calculate a home office tax deduction, you can't deduct more than your business's net profit. However, you can carry them forward into future tax years.
Also note that business expenses that are unrelated to your home office—such as marketing, equipment, software, office supplies, and business insurance—are fully deductible no matter where you run your business.
If you have any questions about qualifying business expenses, home office expenses, or taxes, consult with a qualified tax accountant to maximize every possible deduction and save money. The cost of working with a trusted financial advisor or tax pro is worth every penny.
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