By Michael Aston, E.A.
Alhambra Tax Center
Last month I introduced a list of the basics Schedule-A Itemized Deductions. This month I am going to point out a few things about Medical Expenses.
Medical Expenses (ME) paid out of pocket does not include the amount paid by your Health Insurance Company. The Health Insurance premiums you pay ARE deductible, but NOT the portion the Insurance Company pays on your behalf.
ME have what is called a threshold, or a limit on how much is allowed to be claimed as a deduction.
The IRS states: “You may only deduct the amount of your total medical expenses that exceed 10% of your adjusted gross income (AGI) or 7.5% if you or your spouse is 65 or older.”
Example: a 40 year old taxpayer has an AGI of $80,000.
(10% of 80,000 = 8,000)
Total ME of $10,000 less $8,000 comes to a deduction of $2,000.
For the over 65 year old taxpayer with an AGI of $80,000.
(7.5% of 80,000 = 6,000)
Total ME of $10,000 less $6,000 comes to a deduction of $4,000.
“Medical care expenses include payments for diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatment affecting any structure or function of the body.” (See IRS Publication 502)
Here’s a cliff note on what you can claim as a Medical Expense:
· Home Improvement costs in excess of increased value:
Example: a doctor prescribes that a person needs a hot tub because of back problems. The installation cost of the hot tub is $10,000 and the increases in the home value rises by $8,000. The difference of $2,000 ($10,000 less $8,000) can be claimed as an expense. If the hot tub raises your electricity by 10% per month, the additional 10% can also be a deduction.
· The difference between the cost of a braille books and regular books. If a regular book cost $20 and the same version in braille cost $30, the $10 difference can be deducted.
· Mileage driven to and from a medical related activity: the taxpayer gets a $0.23 per mile deduction.
· Pregnancy test which are purchased over the counter.
What’s NOT deductible?
· Cosmetic surgery, unless it is due to a deformity arising from congenital abnormality, accident or trauma or disfiguring disease.
· Funeral expenses
· If a doctor prescribes medical marijuana, the expense is NOT deductible on the Federal tax return but CAN be deducted on the California tax return.
· Medical expenses paid by your employer.
If you’re not sure about that Medical Expense, bring your receipt to your tax preparer.
If you prepare your own tax return, I would suggest reading IRS Publication 502.