This may be the year to take a tax deduction for medical expenses. It is typically difficult for many people to write off medical expenses because of the limits imposed by the IRS. Medical expenses are only deductible after they exceed 7.5% of adjusted gross income. However, with the tough economical times and higher levels of unemployment, many are finding that for the first time they may be in a position to take advantage of this deduction.
Another reason to focus on the possibility of taking the medical expense deduction this year is that the Health Care Reform Act increases the adjusted gross income threshold for claiming the itemized deduction for medical expenses from 7.5% to 10%. Individuals age 65 and older would be able to claim the itemized deduction for medical expenses at 7.5% of adjusted gross income through 2016. This is effective in 2013.
Even though it is difficult for many people to write off medical expenses due to the limits, you may qualify by including EVERY expense allowed. It is important to know what types of expenses qualify so that you are capturing all possible expenses to help exceed the threshold amount. The medical deduction covers a wide range of expenses – from contact lenses and solution to Lamaze classes for mothers-to-be. In addition, insurance premiums are deductible if they are paid with after-tax dollars. This is especially important to those who have lost their jobs and are paying COBRA insurance out of pocket.
It is not only important to know the eligible expenses but to do some strategic planning as well. Pay as many medical expenses as you can in one year to help exceed the threshold in that year instead of carrying over the expenses to the next year and not being able to meet the threshold in either year. Some examples would be buying additional contacts, perhaps an extra pair of glasses, paying for orthodontic treatment for several children in one year. Keep in mind that you can deduct medical expenses for your dependents as well.
Some of the qualified procedures allowed for medical expenses may surprise you. For example, most insurance plans won’t cover laser eye surgery, “Lasik”, because it is considered a cosmetic procedure. But it generally qualifies for a medical deduction and as an expense in a flexible spending account. The rules can be tricky. For example, you can’t write off the cost of unnecessary cosmetic surgery to improve your appearance. However, you can deduct cosmetic surgery that’s needed to improve a deformity directly related to a congenital abnormality, an injury from an accident, or a disfiguring disease.
In general, the IRS allows deductions for such things as acupuncture, physical therapy, fertility treatments, psychiatric care and psychotherapy, some weight loss programs, dentures, hearing aids, orthopedic shoes. In addition, don’t forget the cost of traveling to your doctor or medical facility for treatment. This is an expense that is often overlooked. The mileage rate for 2010 is 16.5 cents. The cost of other forms of travel such as airplanes, taxis and public transportation is also deductible. Skilled nursing-home care is fully deductible as well as a portion of assisted-living expenses.
Some things not allowed by the IRS include expenses for cosmetic surgery, diapers, hair transplants, gym memberships, marriage counseling, maternity clothes, teeth bleaching and toothpaste. You may not deduct funeral or burial expenses, toiletries, cosmetics, a trip or program for the general improvement of your health.
You may receive more favorable results for deducting medical expenses by utilizing a Flexible Spending Arrangement (FSA), a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA). You should check with your employer to see if any of these plans are available and if so, you should consider utilizing them for your medical expenses.
As the year-end approaches, it would be worthwhile to take a look at your medical expenses. If you are not in an employer sponsored plan mentioned above and if you are close to or exceed the 7.5% threshold, it is important to begin strategizing, i.e., including as many expenses in the 2010 year as possible. If you find that you are close to the threshold as the year-end closes, be sure to contact your tax professional to get a more comprehensive list of all items allowed and disallowed as medical expenses by the IRS.
Elizabeth (Libby) M. Slater, CPA is a Principal with Hill, Barth & King LLC in the Fort Myers, Florida office. Libby has worked as a CPA helping clients in Fort Myers, Cape Coral and other Southwest Florida communities for the past 10 years. She has been with Hill, Barth & King LLC, a top 75 accounting firm, since 2002. Libby can be contacted by phone at 239-482-5522 or firstname.lastname@example.org.