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Allowable living expenses.

IRS has certain allowable living expenses . They very from region to region in the United States. If you go to our website the allowable living expenses for your region are listed. IRS usual does not vary from this list, however a true tax professional can get many more expenses allowed.

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IRS Collection Financial Standards: Allowable Expenses

What expenses will the IRS allow when determining whether a taxpayer has the ability to pay a delinquent tax debt ? At the most basic level, allowable living expenses include those expenses that meet the necessary expense test. The necessary expense test is defined as expenses that are necessary to provide for a taxpayer and his or her family’s health and welfare and/or the production of income.

In order to ensure taxpayers have adequate means of providing for basic living expenses, the IRS has developed national and local expense standards. A national standard is one that is the same for everyone regardless of where he or she lives. A local standard will vary with location due to regional cost differences.

Some standard expense amounts are governed by household size. To determine the proper allowable expense amount, you must first determine the household size. Generally, the total number of persons allowed would be the same as those allowed as exemptions on your most recent tax return.

National Standards

Food and Other Items

This category of expenses includes five specific types of expenses. The categories are food, housekeeping supplies, clothing and clothing services, personal care products and services, and miscellaneous items. Each of the individual categories has their own standard defined.

Out of Pocket Medical

Out of pocket medical expenses include prescriptions, medical and dental co-pays, and medical or dental bills. The standard for out-of-pocket medical expenses varies depending on age. The standard for each household member under the age of 65 is $60.00 per month. The standard increases to $144.00 for each household member 65 or older. Although this expense has established guideline amounts, the IRS tends to be more flexible in allowing amounts that exceed the standard upon providing proof of the additional expenses.

Vehicle Ownership

The IRS will allow up to $489 for a vehicle loan or lease payment. Unlike food and other items, and out of pocket medical expenses, the full $489 is not automatically granted. If the actual vehicle loan or lease payment is less than $489, then only the lesser amount is allowed. The IRS can also deny the payment if the taxpayer cannot prove that he or she needs the vehicle for the health or welfare of the family and/or the production of income.

Public Transportation

Public transportation is allowed at the rate of $173 per month. Taxpayers that do not own a vehicle do not have the costs associated with operating a vehicle; therefore, the IRS will not allow a vehicle operating expense. The IRS does recognize that taxpayers without a vehicle must still get to work, the grocery store, the doctor’s office, etc. Therefore, the public transportation allowance is granted to acknowledge this expense.

In some cases, taxpayers with a vehicle may also be entitled to the public transportation expense. For example, a taxpayer with impaired vision may be able to drive during the day, but is prohibited from driving in low light. Thus, the taxpayer relies on public transportation when driving conditions are not ideal. In this situation, the IRS will generally allow the public transportation in addition to the vehicle ownership expense upon documenting the reasons why public transportation is used and that it is actually being used.

Local Standards

Housing and Utilities

Housing and utilities include mortgage or rent, property taxes, homeowners or renters insurance, electricity, heat, water, sewer, garbage, phone, etc. Housing and utilities is an expense category that many households exceed. While the IRS may allow expenses over the standard, the circumstances in which the IRS will do so are extremely limited. Often taxpayers must make adjustments to successfully resolve a tax debt.

Vehicle Operating

The transportation operating expense category covers all costs of operating a vehicle such as fuel, insurance, maintenance, repairs, and registration. Taxpayers filing an Offer in Compromise may be entitled to an additional operating expense. In June of 2004, the IRS issued a directive, which projected an additional cost of $200 per month for vehicles over six (6) years old with an odometer reading of 75,000 miles or more.

Other Expenses

Other expenses are those expenses that meet the necessary expense test and are therefore allowed expenses. Other expenses commonly include health insurance, court ordered payments, dependent care, term life insurance, union dues, and mandatory retirement. Other expenses generally require documentation before the IRS will agree to allow them as an expense.

Conditional Expenses

Conditional expenses do not meet the necessary expense test. Generally, the IRS will not allow a conditional expense. Common expenses considered to be conditional expenses are credit card payments, tuition, and charitable contributions. However, they are allowable if the total back tax liability, including projected accruals, can be fully paid within five years.

Prorating expenses

Prorating of allowed expenses is beyond the scope of this article, however it is worth mentioning briefly. A peroration analysis may be required when there is a non-liable party living in the same household and the payment of expenses are shared with a liable taxpayer. When this is the case, the IRS will generally look to both the liable party’s and the non-liable party’s income for the purpose of determining the liable party’s share of household expenses.