Taxes: Deducting Medical Expenses

Nobody like spending money on medical bills. However, the good news is you may be able to take it off your taxes. Read this article to learn how.

Staying healthy is not cheap - even routine checkups at the doctor and dentist can be rather costly, especially if you have a high deductible on your insurance plan or have no insurance at all. And if you are unfortunate enough to get really ill, or require hospitalization, medical bills can eat up a big percentage of your income. The IRS, though, recognizes this, and allows you to take off a percentage of those expenses from your income, lowering your tax bill.

You can only take off your medical expenses if you itemize your deductions on Schedule A, and file Form 1040. If you take the standard deduction, or file Form 1040A or 1040EZ, you cannot deduct your medical expenses. Secondly, you can only deduct your medical expenses to the extent that they were over 7.5% of your AGI (adjusted gross income). For example, if you paid $1,000 in medical expenses for the year, but your AGI is $63,000, you would not be able to deduct any of your medical expenses ($63,000 x .075 = $4,725). However, if you paid $8,000 in medical expenses for the year, then you could take off $3,275 - the difference between the $8,000 you spent and 7.5% of your AGI ($8,000 - $4,725 = $3,275). Bear this limit in mind when deciding to itemize or take the standard deduction - if you are already itemizing, though, take all the expenses you can.

Don't think that your medical expense deduction has to be limited to the expenses you paid for yourself - if you paid medical expenses for any qualifying dependent or your spouse, you can also include this in your deduction. Qualifying individuals include anybody who you can claim as a dependent on your tax return who lived with you for the entire year or is a direct relative or step-relative, and for whom you provided at least half of their total support.

Which expenses are deductible? This can be a tricky situation, particularly because of the vast number of definitions of what is considered "medical." Not surprisingly, the IRS has done a fairly thorough job of outlining what they consider to be an allowable medical expense. The list is long and fairly comprehensive: for details about a specific expense see Publication 502. However, there are some fairly common expenses that are almost always allowable, and these are pretty obvious. Any fees you pay to doctors, certain insurance premiums, hospitals, labs, home nurses, or dentists, are deductible. Prescription drugs and medical supplies such as eyeglasses or contact lenses are deductible. If you built a ramp in your home for a wheelchair, or made some other capital improvement, you may be able to take off part of the expense. Less obvious expenses that the government allows you to deduct are expenses related to fertility treatment, including in vitro procedures, treatment for alcoholism or other addictions, and even items such as wigs, if a medical professional recommended it. The government allows you to take off transportation expenses as well, but only direct out-of-pocket expenses for travel directly related to medical care. For example, the IRS allows you to deduct the cost of driving to and from medical appointments at the rate of fourteen cents per mile. The costs of buses, trains, taxis, and airfare is all deductible if it was undertaken for a medical-related reason.

Not all medical expenses are deductible, even if you believe they are medically necessary. Cosmetic surgery, for example generally does not qualify. This includes face-lifts, teeth whitening, hair removal and breast enhancement, among other things, unless deemed medically necessary and documents by a medical professional or is connected directly to a health condition. Other expenses that generally don't qualify include gym memberships, yoga or other classes (even if a doctor recommends them), maternity clothes, imported drugs, child care expenses (even if you hire a babysitter so you can go to a doctor's appointment), and non-prescription medication. A common expense, especially nowadays, is nutritional supplements - these, unfortunately, do not qualify as a medical expense, unless a medical doctor specifically recommended them for a particular condition.

Health care costs are rising by the year, and are a necessary expense. However, if you know what you can take off your taxes as a deduction, you may be able to recoup some of those losses through a lower tax bill. Keep detailed records, and make a list of anything you think might be related to a medical expense, then consult the IRS guidelines or a tax professional with any specific questions you may have. You never know what may qualify to save you a few dollars, and at tax time you'll feel a whole lot healthier.

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