Medical and Dental Expenses – A Commonly Overlooked Deduction

Doctor’s bill weighing you down? Don’t sweat it! They might be deductible. In fact, there are a lot of clients that we work with who are not aware of the fact that those costly doctor’s visits can benefit you come tax time. Here is a list provided by the IRS to see if your medical and dental expenses are deductible. This version is simplified so that you do not have to be a tax professional like me to understand terms like “AGI threshold” and “qualified expenses”:

1. All “qualified” medical and dental bills paid out of pocket that are above 7.5% of your Adjusted Gross Income(calculated on Line 37 of Form 1040). Qualified bills will be explained below.

2. The first qualification test is that YOU must pay the expenses. They cannot be paid by your employer or insurance company. Such examples would be deductibles, co-pays or health insurance premiums that are not withheld from your paycheck.

3. The second qualification test is that your expenses MUST be paid for you, your spouse or anyone you claim on your tax return such as: children, friends/relatives that you support financially and live with you or elderly/disabled relatives that you support, but live outside of your household. In addition, if you are divorced or separated and the other parent claims your child, you can still deduct any qualified expenses you pay out of pocket for the child.

4. The third qualification test is that the expenses need to be “paid for the prevention or alleviation of a physical or mental defect or illness.” This can include a variety of expenses, ranging from doctor prescribed weight-loss or smoking cessation programs to any prescription medication you are taking. This does NOT include any voluntary weight-loss programs or over the counter medications(except for insulin).

5. In addition to the expenses above, mileage and/or transportation costs for medical care are also deductible. For example if you have to use public transportation to get to the doctor, save those receipts. Likewise, if you drive your own car, keep track of the mileage, especially if you have to drive out of state to receive medical care. In addition, tolls and parking fees are deductible. What is not covered is any international medical travel, so if you live near the Canadian or Mexican border and get your medications or treatment there, you cannot deduct these expenses.

6. If you have a Health Savings Account or Flex Spending Arrangement at work and have to withdraw any money for medical purposes you can do so without having to pay any tax on this distribution.

So to summarize – the health expenses must be above 7.5% of your AGI, they must be out-of-pocket expenses that are not reimbursed, they must be for yourself or anyone else listed or claimed on your tax return(or your child if you are divorced and still pay for their medical care), they must be to prevent or alleviate a physical or mental defect or illness, you can deduct mileage and/or transportation costs and finally, any distributions from Health Savings plans used for the qualified expenses explained above will not be taxable.

Please note that this list is only a recommendation and is not a substitute for a one on one consultation with your tax professional. If you would like to consult with myself or one of my fellow Tax Patriots, please contact us and we will assist you in any of your tax issues.