Disaster Declarations May Help Trim ‘95 Or ‘96 Taxes

If you’re pondering your 1996 federal tax return, don’t overlook these itemized deductibles:

Casualty and theft losses. If you itemize, and your property is damaged or stolen, it is difficult to qualify for tax relief. Losses are allowable, after subtracting insurance recoveries and a $100 threshold for each loss, only to the extent that they exceed 10 percent of your adjusted gross income. Thus, if your AGI is $50,000 and you suffer a $6,000 loss from a casualty or theft, you can deduct only $900.

Usually, casualty losses can be deducted only on the tax return for the year in which they take place. But there is an alternative for people living in places later declared a federal disaster area: They can claim their loss on that year’s return or file an amended return for the previous year and deduct the loss there.

This break is available to residents of any of the Washington or Idaho counties declared disaster areas as a result of the November ice storm or last winter’s flooding. Claim the loss on your 1996 return or file a claim on your 1995 return, whichever does you the most good. Should you decide to deduct the disaster on the 1995 return, you must use 1995’s AGI in calculating the 10 percent limitation.

To amend 1995’s return, use Form 1040X. It merely asks you to explain the disaster area loss and compute the refund due. To help speed the refund’s processing, write “disaster area claim” at the top of the form.

Medical expenses. Outlays for medical and dental care, including health-insurance premiums, for you and your dependents are deductible if you itemize - but only if these expenses exceed 7.5 percent of your adjusted gross income. Deductibles include costs of psychiatric counseling to alleviate sexual inadequacy or incompatibility. No deductions are allowed for medicines unless they are prescription drugs (including contraceptive pills and devices) or insulin.

Assuming you overcome the 7.5 percent hurdle, remember that your transportation costs to and from medical, dental or psychiatric treatment, by public conveyance or car, can be deducted. If you use your car, claim a flat allowance of 10 cents a mile, plus parking fees and tolls, says Brian J. Hickey, a partner in the Chicago firm of Cassiday, Schade & Gloor.

No longer do medical deductibles include the cost of plastic surgery performed merely to improve your looks. The prohibition applies to procedures such as facelifts, nose jobs, hair removal (electrolysis) or transplants, tush trims and liposuctions to remove love handles or other unsightly bulges.

Now, cautions the IRS, the cosmetic surgery must be necessary to improve deformities arising from, or directly related to, congenital abnormalities, personal injuries resulting from accidents or traumas, or disfiguring diseases.