It is true – you may find yourself collecting hefty co-payments even when you own medical insurance. Several individuals and businesses, for instance, don’t opt for reliable insurance end up bearing the burden of high cost on their shoulders.
So, why not deduct your medical expenses when the IRS practically gives you the freedom to deduct a part of your medical expenses. But before you do that, you have to assume the itemization of deductions. Also, you should have a lot of expenses before you deduct them.
Primarily, take into account all probable medical deductions to identify whether or not you have sufficient expenses for a permanent write-off. To make things easier for you, here’s a simple explanation of how to deduct your medical expenses:
Step #1 – Medical Expenses: What You Can Deduct
As per the IRS guidelines, you are free to deduct your personal medical expenses. Furthermore, you can deduct the expenses of your spouse as well as individuals who are dependent on you. For example, if you support your elderly uncle and take care of his medical expenses, you can consider your uncle to be dependent when it comes to your tax returns. In simple terms, you can include your elderly uncle’s medical expenses into yours to find out the deduction.
Step #2 – Medical Expenses: How Much Can You Deduct?
You can strictly deduct those medical expenses that are higher than 7.5% of your net income. In short, all you have to do is combine your medical expenses and then subtract them from 7.5% AGI. As a result, you will get your deduction.
Step #3 – Create a Checklist of Deductible Medical Expenses
Contrary to common misconception, a vast majority of your medical expenses are, in fact, tax-deductible. It is imperative to understand that the IRS views medical expenses as any expenses attached to preventing, treating, or diagnosing a disease. Your expense, however, has to be deemed a medical expense for eligibility. It involves:
- Medications
- Overlong care insurance and long-term care
- Medical equipment, medical supplies, and medical devices
- Medical services offered by surgeons, dentists, physicians, or any other medical expert
- Lodging and transportation costs if you travel to a healthcare center. The transport mileage rate is 17 cents for each mile.
- Dental and health insurance premiums. However, the reimbursement of these premiums must not be from your current employer.
Remember, you will only be able to add a medical or dental expenses that are paid in the tax year you’re currently filing for. It means if you, say, had a dental cleaning in Jan. 2020, you cannot deduct that dental expense before filing your 2020 annual tax returns in 2021.
Step #4 –Find Out the Medical Expenses You Cannot Deduct
It might come across as a bummer, but there are certain medical expenses you cannot deduct from your tax return. Expenses you cannot deduct are nonprescription drugs, general health purchases, purchases related to your wellbeing, and cosmetic procedures. Also, you cannot deduct those vitamins you purchase every month.
Moreover, you cannot deduct your gym membership and medical expenses from a different year. An excellent tip to remember when it comes to medical expense deductions is to follow the year. It means if you decide to pay a particular medical expense in 2020, you can only include it in the 2020 tax year.
Now, you may be wondering about tax-free accounts. Whether you have an HSA (health savings account), FSA (flexible spending account), or HRA (health reimbursement arrangement), there’s a good chance your funds in one of these accounts are already deducted. And that’s because these accounts serve as contributors where you get reimbursed with the tax-free amount. Essentially, you cannot deduct your medical expenses under any of these accounts.
Step #5 – Medical Expenses: Claim Your Deductions
If you want to claim your medical expense deductions, you will need to itemize all of your expenses. And this is where you will have to fill out Form 1040 to file your annual taxes as well as attach Schedule A that lists your collective expenses.
Here are some of the things you will find on your Schedule A section:
Line No. 1
Add all your medical expenses and place the total amount here.
Line No. 2
Calculate and then write your AGI sum on this specific line.
Line No. 3
Figure out 7.5% of your total AGI and then write it here. (i.e., AGI x 0.075)
Line No. 4
Write the difference between your total medical expenses and AGI’s 7.5% here.
What happens if your medical expenses are below 7.5% of your AGI? Well, you wouldn’t be able to get the required threshold to deduct medical expenses. For example, if your AGI sum is $4,500 and your total medical expenses are $3,500, you won’t be able to deduct them.
When it comes to the inclusion of your itemized deductions, opt for an option that saves you a lot of money. It can be exhausting to calculate deductions, but qualified medical expenses deserve standard deduction that would save you more money than you can imagine.
Step #6 – Don’t Hesitate to Evaluate Your Choices Again
Yes, prescription drugs and medical services are, in fact, quite expensive. Sure, you might deduct a few expenses on your annual tax return. However, the current rules make it harder to qualify. But with rigorous tax planning, you might be able to turn those medical expenses into your benefit.
In fact, there are plenty of tax advantages you can avail when it comes to deducting medical expenses. In hindsight, always have a progressive approach to review all of your choices. Naturally, you want to make the most of your annual tax return.
Wrap Up: Hire a Professional Tax Expert
Tax complications due to medical expenses are not a new thing. In fact, you are bound to get overwhelmed if you’re on your own. So, if you don’t want your medical expenses to impact your taxes, seek the guidance of a professional tax expert. Besides, it would be a smart decision to not miss out on any deductions that might otherwise cost you a fortune.
A trusted and reliable tax specialist can help you understand some of the most complex tax elements. And before you know it, you will be filing taxes the way you should be. The sooner you connect with an experienced tax expert like BRW Tax & Accounting the better.
Did you know we offer free contactless virtual consultations and transparent membership pricing? Click here to schedule your free consult today!