In some circumstances, you can deduct medical expenses provided that certain conditions are met. There are also certain strategies you can use to save money on your income tax return if you, or your spouse, have unusually high medical expenses during the tax year. The following information will help you decide if you can deduct your medical costs for the tax year.
Definition
The Internal Revenue Service defines medical expenses as the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists and other medical practitioners. They include the costs of equipment, supplies and diagnostic devices needed for these purposes.
Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.
Medical expenses include the premiums you pay for insurance that covers the expenses of medical care and the amounts you pay for transportation to get medical care. Remember to keep all parking receipts and a mileage log. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.
Qualifications
In order to deduct these expenses, certain conditions must be met:
- The expenses must exceed 7.5% of your Adjusted Gross Income (AGI);
- Only the amount that exceeds 7.5% of AGI is deductible;
- Keep records of all out-of-pocket costs;
- Reimbursements must be subtracted from total expenses to calculate your gross total, and
- Expenses are deductible in the year that they are paid regardless of when they were incurred.
Strategies
Every tax situation is different. While we strongly suggest you seek the advice of a Tax Consultant, if applicable to your situation, you may want to consider the following strategies to maximize your medical expense deductions:
Delaying a Elective Medical Procedure Until the End of the Year
This allows you to pay for the procedure at the beginning of the next year. Any follow-up visits or physical therapy will count in the current year. The totals might bring you up to the 7.5% of AGI threshold for deductions.
Example:
You are able to delay a medical procedure until December 2012. You pay for the procedure in January 2013. Your follow-up visits and physical therapy costs accrue in 2013.
Result:
Even though the bulk of the cost (the procedure) occurred in 2012, because you did not pay for it until 2013, you are able to count that expense toward the 2013 tax year. This, combined with the cost of follow-up visits and physical therapy, may bring you up to the 7.5% threshold for deductions for tax year 2013.
Consider “Married Filing Separately” Filing Status
If you have a high adjusted gross income, you may not have enough expenses to exceed 7.5% of your AGI. However, if you are married and one partner has unusually high expenses for the year, the “Married Filing Separately” filing status lowers the AGI for each person and can reduce the threshold for triggering a tax deduction. This strategy works best if one person makes a significant portion of the income for the couple. Keep in mind, when filing separately, you may also reduce or lose certain other deductions, so you should have someone review your tax return to ensure you maximize your tax refund.
Example:
John earns $75,000 a year, while his wife earns $15,000 a year. During the year, his wife has $7,000 in medical expenses.
If they file jointly, their joint income is $90,000 and only $250 is deductible. (7.5% of $90,000 = $6,750 and $7,000 – $6,750 = $250).
If they file separately, the deduction increases to $5,875 because 7.5% of $15,000 (wife’s income) is $1,125 and $7,000 – $1,125 = $5,875.
Result:
By filing separately, the couple is able to increase the amount of their medical expense deductions from $250 to $5,785.
For more information on itemizing deductions, please contact Henssler Financial Tax & Accounting Division at 770-426-9166 or e-mail us at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
