Deducting Medical Expenses

May 07, 2021 by First Federal Bank

medicalNo matter your income or financial situation, medical bills can take an enormous bite out of your budget. If you face big recurring costs or recently went through a high-priced operation or hospital stay, you might benefit from claiming a medical expense deduction on your taxes.

What are the eligibility requirements?

In order to claim the medical expense deduction on your 2020 taxes, your unreimbursed, out-of-pocket medical expenses for that year would need to exceed 7.5 percent of your adjusted gross income, or AGI. In an article for The Balance, tax expert William Perez cautions you can’t claim the whole amount, just the qualified spending that exceeds that 7.5 percent threshold. To calculate what you can deduct, multiply your AGI by 0.075. Then, subtract that amount from your total medical costs. For example, if your AGI in 2020 was $50,000, your threshold would be $3,750. If you incurred $7,000 in medical bills, you could claim a $3,250 deduction.

What can I claim as a deduction?

The IRS keeps a long list of expenses that qualify for this deduction. According to IRS Publication 502, medical expenses are defined as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and for the purpose of affecting any part or function of the body.” These include bills from doctors, dentists, psychiatrists, and other professionals; prescription medications; medical devices from eyeglasses to wheelchairs; hospital and nursing home stays; transportation costs; and certain out-of-pocket insurance premiums. In general, you can deduct these expenses for yourself, your spouse, and your dependents. Check the IRS website or consult with your tax preparer if you have any questions about what you can claim or who you can claim it for.

Which expenses are non-deductible?

Medical expense deductions are subject to numerous limitations. For starters, you can’t deduct expenses you paid in a different year. If you got hit with a big bill in January, you’ll have to wait until 2022 to claim it. You also can’t claim expenses that were reimbursed by your insurance or paid for out of a pre-tax setup like a health savings account. In addition, the IRS lists a variety of expenses that are typically ineligible, including cosmetic surgery, vitamins, funeral expenses, or gym memberships.

How do I go about claiming medical deductions?

To deduct medical expenses from your taxes, you’ll need to itemize them by completing the Schedule A form and filing it with your return. Keeping good records of all your medical spending throughout the year will make this an easier process. As you do your taxes, make sure the amount you can deduct by itemizing is equal to or greater than the amount you’ll get by claiming the standard deduction — you won’t be able to claim both. You may want to consider consulting with a tax professional to see if there are any other itemized deductions you can claim along with your medical expenses to obtain the most beneficial result.

The medical expense deduction can be a powerful way to gain relief, especially if you are saddled with major recurring expenses or experienced a medical emergency in the previous year. Even if you just have normal medical expenses, this deduction is worth checking out to make sure you’re getting the maximum financial advantage from your tax filing.

Categories: Financial Education

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