Today’s topic for the tax planning series is a brief discussion on the potential tax benefits of the medical expense deduction. Medical expenses can be claimed as a deduction when your unreimbursed costs exceed 7.5% of your adjusted gross income (AGI) (10% of your AGI after 2020). Medical expenses are deductible only if you itemize, which means that your itemized deductions must exceed your standard deduction.
Qualifying medical costs, which include many items other than hospital and doctor bills, often amount to a much larger figure than expected. Here are some items you should take into account in determining your medical costs:
Health Insurance Premiums
The cost of health insurance is a medical expense. This item, by itself, can total thousands of dollars a year. Even if your employer provides you with health coverage, you can deduct the portion of the premiums that you pay. Long-term care insurance premiums are also included in medical expenses, subject to specific dollar limits based on age.
The cost of getting to-and-from medical treatment is a medical expense. This includes taxi fares, public transportation, or the cost of using your own car. Car costs can be calculated at 20¢ a mile for miles driven in 2019, plus tolls and parking. Alternatively, you can deduct your actual costs, such as for gas and oil, but not your general costs such as insurance, depreciation, or maintenance.
Therapists, Nurses, and Beyond
Services provided by individuals other than physicians can qualify as long as they relate to a medical condition and aren’t for general health. For example, costs of physical therapy after knee surgery would qualify, but not costs of a fitness counselor to tone you up. Amounts paid to a psychologist for medical care are deductible. Amounts paid for certain long-term care services required by a chronically ill individual also qualify as deductible medical expenses.
Eyeglasses, Hearing Aids, Dental Work & Prescription Drugs.
Deductible medical expenses include the cost of glasses, hearing aids, dental work (but not tooth whitening), and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify, but certain medically necessary cosmetic surgery is deductible. Prescription drugs (including insulin) qualify, but nonprescription drugs such as aspirin don’t qualify even if a physician recommends their use. Neither do amounts paid for operations or treatments that are illegal under federal law (such as marijuana), even if permitted under state law.
Amounts paid for participation in a smoking-cessation program and for prescribed drugs designed to alleviate nicotine withdrawal are deductible medical expenses. However, non-prescription nicotine gum and certain nicotine patches aren’t deductible.
A weight-loss program is a deductible medical expense if undertaken as treatment for a disease diagnosed by a physician. The disease can be obesity itself or another disease, such as hypertension or heart disease, for which the doctor directs you to lose weight. It’s a good idea to get a written diagnosis before starting the program. Deductible expenses include fees paid to join the program and to attend periodic meetings. However, the cost of low-calorie food that you eat in place of your regular diet isn’t deductible.
Dependents and Others
You can deduct the medical costs that you pay for your dependents, such as your children. Additionally, you may be able to deduct medical costs you pay for an individual, such as an elderly parent or grandparent, who would qualify as your dependent except that he or she has too much gross income or files jointly. In most cases, the medical costs of a child of divorced parents can be claimed by the parent who pays them, regardless of who gets the dependency exemption.
In summation, medical costs are fairly broadly defined for deduction purposes. If you believe you may qualify for a deduction or have any questions, please call or contact us.
Very truly yours,