New Tax Laws Offer Opportunity for Medical Expense Deductions
The latest tax laws can be confusing for many, but with the right advice and tips, you can navigate the complex world of taxes and take advantage of new opportunities. The Kiplinger Tax Letter is an excellent resource for staying up-to-date with the latest news and forecasts, offering insights from a highly experienced team.
One such opportunity arises when filling out your 2023 Form 1040. Many filers take the standard deduction, but itemizing can be beneficial if you have significant medical bills. You can claim medical expenses not reimbursed by insurance for yourself, your spouse, and your dependents. These expenses must be primarily incurred to alleviate or prevent a physical or mental disability or illness.
The catch is that medical expenses are deductible only if the total exceeds 7.5% of your adjusted gross income (AGI). For example, if your AGI is $100,000 and your total medical expenses are $9,000, you can deduct only $1,500 on Schedule A ($9,000 – $7,500). However, if you meet this threshold, you can save money on your taxes.
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Step-by-Step Guide to Claiming Medical Expense Tax Deductions
Did you know you could miss out on significant tax savings by not claiming all eligible medical expenses as deductions on your tax return? Here is a step-by-step guide to help you navigate the process of claiming medical expense tax deductions.
Step 1: Know Which Medical Expenses Qualify for Tax Deductions
The list of medical expenses qualifying for tax deductions is broader than most people think. It includes all the basics such as out-of-pocket payments to doctors, dentists, optometrists, and other medical professionals, mental health services, hospital stays, annual physicals, health insurance and Medicare premiums, prescription drugs, insulin, glasses, contact lenses, hearing aids, and dental work such as braces and root canals. In addition, amounts paid for In vitro fertilization and treatment for drug use or alcoholism also qualify as medical expenses.
Health and wellness costs such as smoking cessation programs, nutritional counseling for a doctor-diagnosed disease, weight-loss programs, and particular exceptional food to help treat obesity, hypertension, heart disease, or other physical illnesses diagnosed by a physician are also eligible for medical deductions. Long-term care expenses such as assisted living, in-home care, and nursing home services for yourself, your spouse, or your dependent may be deducted as medical expenses if medically necessary for one who is chronically ill.
The costs of meals and lodging at an assisted living facility or a nursing home count as medical expenses for people mainly there for medical care. Premiums paid for a long-term-care policy are also deductible medical expenses, but the deduction is capped based on age. Specific home improvements to adapt to a disability or illness, such as ramps, wide doorways or entrances, railings, and wheelchair lifts, also qualify.
Veterinary costs for a service dog to assist the visually impaired and others with physical disabilities are eligible for medical expense deductions. The same is true for the cost of buying and training the dog, feeding, and grooming. An emotional support animal counts if needed primarily for the owner’s medical care to alleviate a mental disability or illness. COVID-19 personal protective equipment such as masks, hand sanitizers, and other supplies bought to prevent the spread of COVID-19 are also deductible.
The cost of a legal abortion performed in a state where it is legal, transportation costs, and hotel expenses of up to $50 a night can also be deductible if provided by a doctor in a licensed hospital or a medical care facility. Genetic testing through DNA ancestry registries is also deductible if used for genetic health testing, such as 23andMe, and the portion of the DNA collection kit’s cost for genetic testing.
However, some costs do not qualify as deductible medical expenses, such as most food, weight loss supplements, or low-calorie beverages, weight-reduction programs or cosmetic surgery procedures to improve your appearance, gym membership fees, teeth whitening, hair transplants, an elevator installed in your home (as it adds value to your house), over-the-counter medications that are bought without a prescription, amounts paid for marijuana and other substances that aren’t legal under federal law, regardless of whether they are legal under state law, illegal operations or treatments, and amounts paid to or for a gestational surrogate, including costs to identify and retain the surrogate and the person’s medical expenses.
Step 2: Keep Records of All Medical Expenses
It is essential to keep all receipts and documentation for medical expenses throughout the year. This will help you keep track of all eligible costs and provide accurate information when it comes time to file your tax return.
Step 3: Determine Your Eligibility for the Medical Expense Tax Deduction
To claim the medical expense tax deduction, you must have enough eligible medical expenses to exceed a certain percentage of your adjusted gross income (AGI). For the 2021 tax year, the threshold is 7.5% of your AGI. This means that if your AGI is $50,000, you must have medical expenses exceeding $3,750 (7.5% of $50,000) to claim the medical expense tax deduction. The 2022 tax year will increase the threshold to 10% of your AGI.
Step 4: Calculate Your Medical Expense Tax Deduction
Add all eligible medical expenses exceeding the threshold mentioned in Step 3 to calculate your medical expense tax deduction. Subtract the threshold amount from your total qualified medical expenses. The resulting amount is your medical expense tax deduction.
Step 5: Claim Your Medical Expense Tax Deduction on Your Tax Return
It would help if you itemized your deductions on Schedule A of your tax return to claim your medical expense tax deduction. Be sure to include all eligible medical expenses that exceed the threshold mentioned in Step 3.
Knowing which medical expenses qualify for tax deductions can help you save money on your taxes. Be sure to keep all receipts and documentation for medical expenses throughout the year and consult a tax professional to determine which expenses are eligible for tax deductions.
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