Tips to Maximize Medical Deductions This Tax Season
If you have had medical expenses that you paid out of pocket this year, you can likely deduct these from your taxes. In fact, there likely are medical deductions that you have not even considered. The laws regarding this, however, are complex and must be followed to the letter. It’s important to inform yourself about medical deductions so you can deduct the maximum amount while staying on the right side of the law.
What Medical Expenses are Deductible?
You can not only write off medical expenses for yourself and your spouse but for dependents as well. This includes a child or even a relative that you care for. You do not have to claim this person as a dependent in order to write off his or her expenses. For example, a parent who has less than fifty percent custody of his or her child usually does not claim that child on his or her taxes but still can deduct medical expenses that he or she personally paid.
You cannot deduct all medical expenses, although most will be covered. In general, you can only deduct expenses that you personally paid for. If your insurance plan or an employer paid, then this is not a deductible expense.
If you have a question, the detailed list of allowed deductions can be found in IRA Publication 502. Be sure to save receipts and itemized invoices for all things you plan to deduct. In addition, you should keep a record of who was paid, the amount, and the date, in addition to which person in the household needed the service. Good recordkeeping makes it easier to file taxes and can help you justify your deductions to the IRS if need be.
What Rules Govern Medical Deduction?
There are several rules that will affect your deductions. First, if you are under 65, you can only write off medical expenses that exceed ten percent of your adjusted gross income. In other words, the government considers ten percent of your income to be a “normal” medical budget but anything above that is tax deductible. If you are 65 or older, you can write off medical expenses that exceed 7.5 percent on your adjusted gross income.
While most people think that they spend less than these limits, this often is not the case. Medical expenditures are not just doctor’s visits and prescriptions. There actually are a lot of overlooked deductions.
Most Overlooked Medical Deductions
Most people do not get near their ten percent standard because they are not counting all of their medical expenses. These are the expenses that people are most likely to forget:
– Insurance premiums from taxed income, such as long-term care insurance
– Treatments and devices not covered by insurance, such as dentures and contact lenses
– Travel expenses associated with medical care, using the IRS mileage rates of 23.5 cents a mile
– Adaptive devices for special needs, including wheelchairs, mobility devices, closed-captioning on televisions, animal companions such as seeing eye dogs, and modifications to your vehicle and home
– Laser eye surgery
– Substance abuse treatment
– Transportation and admission costs to attend a conference for people with conditions suffered by you or someone in your household
– Smoking cessation programs
– Medically necessary diet programs
What Medical Costs are not Tax Deductible?
There are certain medical costs that are not tax deductible. These include home modifications that increase the value of your home, like elevators. Cosmetic procedures like electrolysis or anti-aging treatments are not covered either. Supplies that are not recommended by your doctor for health reasons – alternative remedies, for example – are also not covered.
Tips and Tricks for Increasing Medical Deductions
There are a few strategies that will allow many households to write off more medical expenses. In general, these fall under two categories: increasing medical expenses or decreasing adjusted gross income.
There are a few ways to “increase” medical expenses without paying more than you otherwise would. If you are already over or close to your ten percent, you can purchase medical services in December rather than January. This is especially helpful for people who plan to earn more or have fewer medical expenses next year. If you are short on money, you can even pay for these expenses with a credit card. Even though you will be actually paying for the credit card bills in 2015, you still can count these as a 2014 deduction if the purchase was made in this calendar year.
Reducing adjusted gross income is more complicated. Some people make donations to a health savings account, for example, or a 401(k). Sometimes even a small decrease in adjusted gross income can lead to a much larger amount of medical deductions. It’s important to run the numbers and see which strategies will save you the most money.
Medical expenses for the average family increase every year, to the point where they are currently a large burden for many households. It is important to get as many deductions as you can to lessen this huge and growing cost. While the laws are complex, it is possible for most families to get back some of their investment in their personal health and wellness.
I hope you guys enjoyed this article. This is just a quick tip for tax pros reading my post. I started using a service called eFile4Biz this tax season. They let me efile 1099 and W-2 forms for my clients on their website, and they do all the printing and delivery of the copies to my client’s contractors as well. My typical tax season headaches have been cut in half. I no longer have to spend countless hours at my printer, the post office, or worrying if I’ll run out of printer toner. If I knew I could simply file 1099 online for each client and let someone else do the rest of the heavy lifting, I’d have taken on some more clients this year. However, there’s always next year. Check out their video below.