Tax Benefits of Medical Deductions Explained
Writing off medical expenses on your tax return is a real thing. There are 2 important questions to medical deductions. One of them is a fairly common and easily asked, “What can I write off?” or “Can I write [XYZ] off as a medical expense?” The second and actually significantly more important question is “will my medical expenses even help me”? I will address the second first, as that concept I feel is much more important.
It is a lot of work to keep track of all your medical expenses in a year, prescriptions, every doctor visit, logging the miles, etcetera. Instead of detailing out all the things you CAN deduct under a medical deduction, first you should ask if it is even worth all the time it will take to gather that data.
Medical deductions are part of your itemized deductions, and your total itemized deductions need to exceed the standard amount you are allowed to deduct with 0 proof (standard deduction). Secondly however, is that medical deductions are reduced (or limited) by a percentage of your AGI (for simplicity we will just say total income). The reduction, or limitation, is currently at 7.5% of your total income.
Assume you are married, quantity of children doesn’t matter, and have a combined income of $75,000.00. You have some high medical costs that year, and one of you is diabetic and filling insulin prescriptions every month. Your insurance covers most, but you still end up paying $200.00 a month in prescriptions, and had some dental work done that year ($2,500.00) on top of now having to wear glasses for the first time ever ($500.00). The total you have with all the big things is $5,400.00 which you can fully list on your tax return. Now that reduction, or limitation, comes into play. The income of $75,000.00 will reduce the medical expenses by 7.5%, or $5,625.00, making your total medical deductions 0 (no negative numbers here).
One can most certainly go back and find every single little exam, co-pay, blood work, etc. and manage to get over that magic 7.5% number, and it will help, but it will help very little. Say you get to $6,000.00 in medical deductions, minus the $5,625 (yes minus, getting over the amount does not magically make it all a deduction) means that your medical deduction adds $375 to your total itemized deductions. At $75,000 you would be in a 12% tax bracket (after standard or itemized deductions), thus that $375 has now changed the bottom line of the return by $45 in your favor.
I do not intend for this to be discouraging information, rather a time saving one. Yes medical deductions are a thing, and yes they can help your tax return. They need to be VERY significant, and truly I hope that is not the case. What I propose you take away from this, is that if you can remember 10% (easy to do math) and as the year goes by, ask yourself are my medical deductions anywhere close to 10% of what I (or we) make? If no, you can save a modest amount of time trying to hunt it all down – or bothering if some odd thing is a deduction or not. Most who have a modest or better insurance plan, will never reach that 7.5% simply due to insurance kicking in 100% after a certain dollar amount is met each year (which is a very good thing!).
Now on to the what is a deduction and what is not, question number 1. I will offer first a very generic and blanket statement to head off certain questions. Generally, make me healthy costs are deductions, and make me pretty costs are not deductions.
There is quite the list of medical expenses that are allowable and also specifically not allowable, and I will list some, but it is best to get it from the source – IRS Publication 502 (the 2017 version of What Medical Expenses Are Includible begins on page 5, listed alphabetically).
Easy ones to ensure to include will be co-pays from all checkups, prescriptions, ER, dental, and vision. You can also log all the miles driven to each of the locations, including to fill prescriptions, there is a standard mileage rate for medical miles – it isn’t great, but if you have determined the expenses are worth the time to put together, get everything you are allowed!
Insurance premiums ARE a deduction, but if you have insurance through work – 99.9% chance it has already been deducted on your paycheck and you should not claim it twice as a medical expense. Nursing home costs can be a deduction, when the primary purpose is to obtain medical care (personal convenience is not a deduction). Medical equipment and supplies such as crutches, blood sugar kits, wheelchairs, etc. are also allowable.
Some are allowable even if odd at a glance – rehab, birth control when prescribed, breast pumps, and guide dog costs.
Nondeductible things, please also see Publication 502, will include things like dancing/swimming lessons even with a prescription, controlled substances like marijuana (even if allowed by state, remember tax return is federal and it is still illegal federally), funeral costs, medicine from other countries, vet expenses (except a medical guide dog), and teeth whitening.
I would like to again say this is not intended to a discouraging or disheartening topic. With the new standard deduction those whom will feel benefit from medical costs will be fewer. If you are unsure, remember the 10% of your income rule – if you roughly think of all your costs in the year and they are significantly less than 10% of your income, don’t even bother with medical expenses for your tax return. If you truly believe you are close to or over the 10% mark, please don’t only include the big things, but get all the little ones too like co-pays and medical miles driven!
Our office is happy to take new clients, and we also offer tax planning/consultation appointments, please feel free to give us a call a schedule an appointment at 281-440-6279.
Charles Steinmetz
Senior Tax Professional
