Taxes are probably the last thing anyone on the planet wants to deal with (unless you are an accountant). But for us to make the most out of our expenses, understanding them can go a long way. We all know medical expenses can land you with a hefty bill. Accidents though, aren’t exactly something you plan around your schedule. Sometimes we get sick, or those around us do.
It is essential for us to know if we are eligible to save some money in these situations. So, taking advantage of the medical expense deduction relief is not only your right but a wise thing to do!
> What can I deduct with medical expenses deduction?
According to the IRS publication 502, You can claim for the following;
• Legal Abortion
• Physical examinations
• Artificial limb
• False Teeth
• Bandages and Medical Supplies
• Birth Control
• Body Scan
• Braille Books and Magazines
• Breast Pumps and Supplies (Not for bottles for storage supplies though)
• Breast Reconstruction Surgery Following a Mastectomy
Along with the treatments above, the IRS will allow you to claim for preventative care, treatments, surgeries, dental, and vision care. This means you are eligible to claim for medical prescriptions, glasses, contacts, hearing aids, and false teeth.
In your claim can also include any specially modified equipment which you have installed at your home, such as entrance ramps, widening of doorways and support bars.
How much can I deduct?
The current value is anything over 7.5% of your adjusted gross income (AGI). Your adjusted gross income includes wages, alimony, dividends, capital gains, and business income minus payments to student loans or IRA contributions.
Example, if your AGI is $50,000 anything over $3,750 could be classed as deductible. We work this out by multiplying 50,000 by 0.075 = £3750.
Please remember to check your state threshold. Your state threshold for deducting medical expenses could vary and save you a lot of money. It is one of the reasons a good accountant, or understanding your taxes, comes in handy.
What else do I need to know about medical expense deductions?
Just remember when claiming deductions;
1. You can only include medical expenses you paid during the financial year.
2. You cannot claim for deductions on expenses that were paid back to you from your insurance or another type of reimbursement.
What medical expenses aren’t tax deductible?
• Funeral Expenses
• Over the counter medicines (such as paracetamol)
• Toothpaste and toiletries
• Cosmetics surgeries
• Non prescribed stop smoking medicines
How to Claim Medical Expense Deductions?
The first step in claiming your medical expense deduction is to itemize your deductions. If you decide to itemize your deductions, it will help you to maximize the savings you can make on your tax payments. Itemizing allows you to claim a higher deduction as opposed to a standard deduction.
Itemizing takes a little more time to complete. If your itemized rate is higher than your standard, then it is worth it if it isn’t then sticking with your standard rate will be more beneficial.
If you use software to figure your taxes, then it can help you to works all this out a lot easier.
Step 1. Itemize your deductions
Step 2. Use IRS form 1040 to file your taxes and attach your itemized schedule A.
Schedule A form.
1. Fill in the total of the medical expenses you paid and intend to claim tax relief from on line 1.
2. Fill in your (AGI) on line 2.
3. Work out 7.5% of your AGI on line 3.
4. Write down the difference of your expenses and 7.5% of your AGI on line 4.
The amount on line 4 should be taken away from your adjusted gross income (AGI) to show your taxable income for the year.
If this plus your other standard deductions works out to be less than your standard deduction, then there is no point in itemizing.
Other things to consider when filing your taxes
Remember, it is vital that you keep all your bills and records from medical procedures and medications. Keeping track of your expenses allows you to take advantage of tax saving opportunities.
It is a good idea to consider your filing status. Filing separately for a married couple could allow you to have a more significant medical deduction. Although, you would have to take into consideration that filing individually could impact any other deductions you get from the joint file.
It is essential to do proper due diligence when it comes to checking and submitting your medical expense deductions.
Andrew Osterland has edited various financial websites at QuinStreet for a span of four years. Because of his talent and hard work, he was raised to the role of senior editorial manager of the company’s insurance sites and was a contributing writer at CNBC.com. He is also an entrepreneur and has been the editor manager of Insure.com. Full profile here.