This time of year, people everywhere are talking about medical costs. People can’t control medical cost increases. However, some people can take advantage of medical deductions and reduce their income tax liability. They just need to know which expenses are deductible, who qualifies, and the limits.
These four important tax tips help taxpayers know the what, when, and how of tax deductible medical expenses:
- What are the Allowable Expenses?
Only medical and dental expenses paid during the tax year are deducted, regardless of when the services were provided. Allowable costs include diagnosis, cure, mitigation, treatment, or prevention of disease rendered by medical practitioners. This includes equipment, supplies, and diagnostic devices needed for the primary purpose of alleviating or preventing a physical or mental defect or illness, not merely to benefit general health, such as vitamins or a vacation.
- Who Qualifies?
Generally, only taxpayers who itemize their deductions (vs. taking the standard deduction) can deduct medical and dental expenses only if they exceed 10% of AGI (7.5% if you or your spouse was born before January 2, 1951). Allowable expenses generally include medical expenses paid for the taxpayer, spouse, and qualified dependents.
- What about Insurance Premiums?
Medical expenses include the premiums paid during the year for insurance that covers the expenses of medical care, and the amounts paid for qualified long-term care services. Insurance premiums paid and for which a credit or deduction is claimed cannot be deducted.
- What’s Different for Self-Employed?
Sole proprietors, general partners, and S corporation shareholders owning more than 2% with net income from self-employment may be able to deduct, as an adjustment to income, amounts paid for medical and qualified long-term care insurance for the taxpayer, spouse, and qualified dependents. The insurance plan must be established under the business.
Taxes, including medical deductions, are complicated. Don’t go it alone! Get more details at www.irs.gov or from a qualified tax professional.