As Americans, we spend about $8,000 per year on health care – about 2 and half times more than other developed countries. Is any of that deductible, you ask? An extensive list of expenses are, but there’s a catch. Medical expenses are only deductible if they exceed 10% of your Adjusted Gross Income (AGI). However, there are a broad range of medical expenses that are deductible, so you may well qualify to deduct at least a portion. Read below for the details.
Deductible medical and dental costs include those that you paid for not only yourself, but your spouse and dependents as well. If you were reimbursed by insurance, the deduction will be reduced by this amount. Expenses can include almost anything related to diagnosis, treatment, or prevention, including premiums and travel, such as public transit, parking fees, and more. From acupuncture to artificial limbs, contact lenses, hospital care, and more, the IRS has provided a long list here.
You must itemize these deductions on your taxable income Form 1040, Schedule A. This means itemizing your other deductions too, which will be worth the hassle since you will most likely exceed the cap for a standard deduction. Make sure to follow Schedule A instructions carefully and keep all receipts for these expenses, especially digital copies.
Although nearing an end, there is a temporary exception for the 10% rate (as it was previously 7.5%) until December 31, 2016 for those aged 65 or older and their spouses. In this case, individuals are allowed to deduct unreimbursed medical expenses that exceed 7.5% of one’s AGI. Beginning in 2017, all taxpayers will only be able to deduct medical expenses after 10%.
Unfortunately, you cannot reap double benefits if you used either a Health Savings Account or Flexible Spending Account to pay for medical expenses, as these funds are usually withdrawn on a tax-free basis.
Consult your tax professional when contemplating deducting your medical expenses, as it takes more concerted effort and time, complicating your tax return, and increasing the chances for errors. However, if your medical expenses took up a significant portion of your income, it can very well be worth it.
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