Medical expenses are inevitable and often extensive and expensive. Why not use them to potentially lower your taxes? Depending on if it qualifies, your medical expenses can be part of your itemized deductions, which if you gather enough of them, can potentially lower your tax bill. Before you start gathering your bills, keep in mind only certain medical expenses qualify to be deductible.
Qualified Medical Costs
In general, medical expenses used to pay for the diagnosis, treatment or prevention of illnesses qualify as deductible medical expenses. Some common examples include:
- Prescription medication costs.
- Cost of travel to medical office, such as taxi fare.
- Purchase of medical equipment or supplies such as wheelchairs, eyeglasses, etc.
- Part B Medicare.
- Direct costs to medical professionals, e.g. paying out of pocket for emergency room visits or medical office visit co-pay.
Elective cosmetic surgery costs are not deductible. Costs that are simply beneficial to one’s health, such as vitamins or gym memberships, are also not deductible. Insurance premiums are usually not deductible, but may be in certain circumstances if it covers the costs of hospital bills.
Figuring the Medical Expense Deduction
Medical deductions can be claimed on Schedule A of your 1040. In order to claim the medical expense deduction, the TOTAL of all those expenses must exceed 7.5%* of an individual’s adjusted gross income (AGI). The qualified expenses must have also been incurred during the applicable tax year. Prior year expenses cannot be included. For example:
Tom has learned from his accountant that his AGI is $55,000. After gathering all of his qualified medical costs for the year, he finds out it totals $3,348. He cannot claim the medical deduction because his total is less than $4,125, which is the 7.5% AGI that needs to be exceeded in order to claim the medical deduction.
Combined, itemized deductions need to exceed the standard deduction amount in order to claim itemized deductions. To be able to claim itemized deductions, extensive planning must be taken. Having a knowledgeable support team like us at MiklosCPA to properly gather those qualified deductible expenses can potentially help save on your taxes. We have helped many small and mid-sized businesses with their accounting and tax needs. Contact us for more info on how we can help you. Also follow us on our social media pages for more “good to know” articles.
*The 7.5% applies for 2018, but will revert to 10% for 2019 and onward.