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Nov 2015

Medical Care Costs: What’s Deductible?

Paying for your medical care can be daunting! Doctor visits, hospital bills, co-pays, prescriptions, and even health insurance premiums- is there any relief? Your friendly U.S. Tax Code does offer some ways to recoup your “out of pocket” expenses, but how do you know where to start? Read on and you may pick up a few tips to discuss with your tax professional and see if they can help ease your pain.

  • You can start  by keeping very good records. You need to be able to prove to Uncle Sam that you actually spent the money you are claiming on medical care. So keep those receipts in a safe place. Keep in mind that you can deduct “out of pocket” expenses for medical care, but only after those expenses exceed 10% of your adjusted gross income (AGI) or 7.5% of your AGI if you are 65 years of age or older (“Out of pocket” means money you have to pay, not the money your health insurance company or someone else pays). If you want to know what your AGI is for last year, check line 37 of your Federal Income Tax 1040 form. 10% (or 7.5% depending on age) of that number is what you need to hit before any medical care is deductible. So, for example, if your AGI for 2014 is $40,000, then assuming you have about the same AGI for 2015, anything over $4,000 in medical care expense may be deductible. So, keep a good record of every expense you have, make a list, and discuss this with your tax professional to see if you can take a medical care deduction on your taxes.

What are some items  you may be able to include on your list of deductible medical care expenses? Every prescription for which you spend money out of pocket goes onto your list. If you or a dependent go to see a medical doctor, chiropractor, dentist, psychologist, or even a non-traditional medical practitioner (like an acupuncturist), then the co-pay, or any money you actually pay out of pocket, goes onto your list. A good tip is to ask your pharmacy and medical provider for a printed accounting of all out of pocket expenses you incurred with them for the entire year. They are usually happy and able to accommodate that request. The accounting print out can be used as supporting documentation for your medical care deduction.

  • What about your health insurance premiums? If you are self-employed, then yes, the premiums may be deductible. If you have an employer and the employer pays your health insurance premiums with “pre-tax” dollars (“pre-tax” means money you already received a tax benefit on by not paying taxes on it, so you can’t get a second benefit on the same money) then no, you probably cannot add it to the list. But if your employer does not pay the health benefit premiums with “pre-tax” dollars, you can add all those premiums to the list and discuss it with your tax professional. You should also ask your company HR department whether they pay the premiums with “pre-tax” dollars.
  • COBRA payments (health insurance premiums that you pay after you leave a job, but which allows you to keep the same medical benefits you had when you were still working for that employer) may be deductible and should be added to the list.
  • If you have a college student at home and  pay for “student health” through the school, then that amount goes onto the list.
  • Did you know that the money you pay just to get to the doctor or hospital is deductible? Well, it is. Did you need an ambulance? That expense is deductible. Did you take a taxi, bus or train? The expense is deductible. Did you drive? Keep a record of your mileage. The IRS has a “standard mileage rate” that is deductible. Did you have to park or pay a toll? That amount goes onto your list too.

Just remember that you can only add to your list the amounts that you did not get reimbursed from someone else, like your health insurance company. And all of the expenses have to be incurred in 2015, January 1- December 31, to be included on your list. Don’t include over-the-counter medications like aspirin or Ibuprofen or that cough medicine that tastes awful (or toothpaste or cosmetics for that matter), they are not deductible and should not be on your list.

The above examples are not exhaustive of all the different types of deductions you can take for medical care. But we hope you can see that by keeping very good records your list of medical expenses could add up quicker than you think.  At least in this way you will know whether or not you have reached that 10% (or 7%) threshold that the US Tax Code has established and how much you qualify to take as a deduction. And speaking of “seeing”, for those of you who wear glasses or contact lenses, those expenses go onto your list too!

Consult your tax professional for details and to learn what deductions specifically apply to your situation..

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