How to Claim Medical Expense Tax Deductions
Medical expenses can damage your budget tremendously, especially when the emergency is unexpected and your insurance does not cover it. The good news is the IRS does allow you to have some relief so some medical expenses can be partially tax deductible.
However, to take advantage of their leniency you have to know what is considered a medical expenses and how to claim the deduction.
The IRS allows you to deduct your qualified medical expenses that exceed 10% of your AGI.
For example, let’s say you had an AGI of $45,000 and $5,475 in qualified medical expenses. You would have to multiple $45,000 by 10% to find that only expenses exceeding $4,500 could be deducted, which means your deduction would be $975.
Until December 2016, those who are over the age of 65 can deduct qualified medical expenses that exceed 7.5% of their AGI.
IRS Medical Deductions
- Prevent care
- Dental and vision care
- Psychologists and psychiatrists visits
- Prescription medications and appliances
- Travel expenses for medical care
Non-Deductible Medical Expenses
Any medical expenses that you are reimbursed for are considered nondeductible. Additionally, you cannot deduct cosmetic procedures, non-prescription drugs (insulin is excluded) and general health items. You also can only deduct the expenses during the tax year that they occurred.
How to Claim the Medical Expenses Deduction
To claim the medical expenses deduction, you have to itemize your deductions. Additionally, you should only claim this deduction if it is higher than the standard deduction. If you decide to itemize your deductions, you have to file Form 1040 and attach Schedule A.
- Report the total amount of medical expenses that you paid on line 1 of Schedule A and your AGI from line 38 on Form 1040 on line 2.
- Put 10% of your AGI on line 3
- Enter the differences on line 4
- The results on line 4 will be subtracted from your AGI to show your taxable income
- If this amount is less than your standard deduction, stick with the standard deduction.
Itemizing deductions are ideal for those that are self-employed, have a lot of out-of-pocket medical expenses, and investments. Business owners also itemize deductions for personal business expenses on their individual returns. It is important, however, to view the updated list of accepted deductions and their limitations prior to completing your tax return.
Itemizing deductions is tricky. Some have a floor amount, or minimum amount allowing for deductions over set dollar amounts only.
Another twist with itemizing deductions is limits for taxpayers based upon income amount. This income limit can also change as inflation adjustments are made to standard deductions. This does not mean that your deduction will not count, it may just reduce the amount of the deduction that you can take.
Tips for staying organized for itemized deductions:
- Keep separately labeled files for each expense
- Date every expense
- Keep files in chronological order
- Obtain copies of donations, mortgage interest, medical expenses and other miscellaneous expenses
To file your itemized deductions, you will use form 1040 Schedule A. This form must be attached to and/or submitted with your completed form 1040. You cannot itemize deductions if you are using form 1040 A or 1040EZ.
Keep in mind, if you file with TurboTax or H&R Block they will ask you the correct questions to let you know which medical deductions you qualify for and guarantee you will receive the largest refund ever. You can also use their free tax refund calculator to see how much of a refund you can expect.