The Challenge of Deducting Medical Expenses
Mary Beth Franklin
Keep Careful Records
Rising medical costs seem to be on everyone's mind these days as lawmakers continue to battle over health-reform legislation. Although the tax code provides a deduction for some medical costs, only 7 percent of taxpayers claimed it for 2008.
That's because you can deduct only those out-of-pocket medical and dental expenses that exceed 7.5 percent of your adjusted gross income. So if your AGI is
Medical expenses include payments for doctors and dentists, hospital fees, insurance premiums (including
You cannot deduct expenses for your general health, such as vitamins, but you can deduct a doctor-prescribed weight-loss program. For details on other deductible expenses, from acupuncture to X-rays, see
If it looks as though your medical expenses are approaching the tax-deductible threshold, make sure you add up all related costs for you, your spouse and your dependents. (And for future planning, try to bunch elective medical procedures into years that you'll qualify for a medical deduction.)
You may even be able to deduct medical expenses that you paid for a family member who doesn't qualify as your dependent, such as an elderly parent or an adult child, as long as you paid more than half of their support.
Don't forget to include miles driven for medical purposes. For 2009, you can deduct
If your income took a hit last year due to temporary unemployment or reduced hours, your lower AGI may be the ticket to deducting some medical expenses, even if you haven't been able to deduct them in the past. The lower your income, the more of your medical expenses you'll be able to deduct (assuming your total itemized deductions are more than you could claim with the standard deduction for your filing status).
And while in most cases, filing jointly offers married couples the biggest tax saving, you may want to file separately if one spouse has significant medical costs. Be aware that some tax credits, such as child, dependent-care and higher-education credits, aren't available if you file separately. But if those special situations don't apply to you and one spouse has lower income and high medical costs, you may be able to deduct significantly more than you could filing a joint return.
If you are subject to the alternative minimum tax, a parallel tax system that does not permit many of the usual exemptions and deductions allowed under normal tax rules, you have to meet an even tougher test: Deductible medical expenses must exceed 10 percent of your adjusted gross income.
If you are self-employed and pay health-insurance premiums, you can deduct 100 percent of the cost. (That means this deduction is not subject to the 7.5 percent AGI limitation that other medical expenses are.)
FLEX YOUR SAVINGS
Considering how difficult it is to deduct medical costs on a tax return, most workers are better off contributing to their employer's flexible spending account to pay for their out-of-pocket health-care bills. Because the money that goes through the flex account is not taxed, the effect is the same as allowing you to deduct medical costs -- without worrying about the 7.5 percent limit.
- How to Avoid the Marriage Tax
- The Challenge of Deducting Medical Expenses
- Health Care Reform Overhaul: What Happens When
- Older Americans Comment on Health Care Reform
- Big Changes Coming to Student Loans
- Many Americans Still Clueless About Retirement Saving
- Affording a Stay-at-home Mom?
- New Tax Provisions Make Filing More Complicated This Year
- Make More Money & Live Your Passion: Become a Cre8tor
- Keep Close Eye on Bank, Mutual Fund, Credit Card Fees
- Jobs With the Best Retirement Benefits
- Consumers who go green may qualify for federal credits and deductions
- Banking Laws Leave Business Customers Vulnerable to Internet Fraud
- Gen Y to Banks: Do Better
- Deducting Hobby Expenses: Think Business
- Sadly Bad Advise Abounds on Roth IRA Conversions
- Identity Theft May Be Prelude to More Serious Crime
- Automatic Saving Painless Way to Build Emergency & Retirement Funds
- Not All 401k Plans Created Equal
- Time to Prepare Your Will
- Bigger Tax Break for Writing Off Costs of College
- The Secret to Being Poor
- Roth Conversion Can Be Good Move, But Consider These Caveats
- 8 Factors that Determine Your Final 401(k) Balance
- How to Tell if You Are Saving Enough for Retirement
Personal Finance - The Challenge of Deducting Medical Expenses
(c) 2010 Kiplinger Personal Finance