Medical Expense Deductions

Sabrina Hoyt, CPAWhen thinking of tax deductions one thing you might want to consider is medical expenses. The medical deduction can only be claimed to the extent your unreimbursed costs exceed 10% (7.5% if you or your spouse have reached age 65) of your adjusted gross income (AGI). Medical costs that exceed the thresholds are added to your other itemized deductions that include taxes, charitable contributions, and other itemized items. If the combination of your medical, taxes, charitable contributions, and other itemized exceed your standard deduction, then you will prepare form schedule A, Itemized deductions.

Qualified costs often amount to much larger amounts than expected. Here are some items you should take into account in determining your medical costs:

  1. Health insurance premiums. Health insurance is a medical expense (when paid with after tax dollars). Long-term care insurance premiums are also included in medical expenses, subject to specific dollar limits based on age.
  2. Transportation. The cost of getting to and from medical treatment is a medical expense. This includes taxi fares, public transportation, or the cost of using your own car. Car costs can be calculated at 19¢ a mile for miles driven in 2016 (23¢ for 2015), plus tolls and parking. Alternatively, you can deduct your actual costs, such as for gas and oil (but not your general costs such as insurance, depreciation, or maintenance).
  3. Therapists, nurses, etc. The services of individuals other than doctors can qualify as long as the services relate to a medical condition and aren’t for general health. For example, costs of physical therapy after knee surgery would qualify, but not costs of a fitness counselor to tone you up. Amounts paid for certain long-term care services required by a chronically ill individual also qualify as deductible medical expenses.
  4. Eyeglasses, hearing aids, dental work, psychotherapy, prescription drugs. Deductible medical expenses include the cost of glasses, hearing aids, dental work, psychiatric counseling, and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify. Prescription drugs (including insulin) qualify, but items such as aspirin and vitamins don’t. Neither do amounts paid for operations or treatments that are illegal under federal law (such as marijuana), even if state or local law permits the procedure or drug.
  5. Smoking-cessation programs. Amounts paid for participation in a smoking-cessation program and for prescribed drugs designed to alleviate nicotine withdrawal are deductible medical expenses. However, non-prescription nicotine gum and certain nicotine patches aren’t deductible.
  6. Weight-loss programs. A weight-loss program is a deductible medical expense if undertaken as treatment for a disease diagnosed by a physician. The disease can be obesity itself or another disease, such as hypertension or heart disease, for which the doctor directs you to lose weight. It’s a good idea to get a written diagnosis before starting the program. Deductible expenses include fees paid to join the program and to attend periodic meetings. However, the cost of low-calorie food that you eat in place of your regular diet isn’t deductible.
  7. Dependents and others. You can deduct the medical costs that you pay for your dependents, such as your children. In most cases, the medical costs of a child of divorced parents can be claimed by the parent who pays them, regardless of who gets the dependency exemption.

The 10% (7.5%) limit can be a huge amount and in some cases your medical expenses will not exceed the limits and therefore no deduction on your return. Another option for a deduction is contributions to a Health Savings account (HSA). For eligible individuals, HSAs offer a tax-favorable way to set aside funds to meet future medical needs. Here are some tax-related elements:

  1. Contributions you make to an HSA are deductible (within limits)
  2. Earnings on the funds within the HSA are not taxed
  3. Distributions from the HSA to cover qualified medical expenses are not taxed

To be eligible for an HSA, you must be covered by a “high deductible health plan”. For 2015 and 2016, a “high deductible health plan” is a plan with an annual deductible of at least $1,300 for self-only coverage, or at least $2,600 for family coverage. The limit on deductible contributions is $3,350 (2015 and 2016) for self-only coverage, and $6,650 (2015) and $6,750 (2016) for family coverage. Additionally, annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits cannot exceed $6,450(2015) and $6,550(2016) for self-only coverage or $12,900(2015) and $13,100(2016) for family coverage.

To learn more about medical deductions or HSA’s and how they may provide a tax savings to you, please consult with a qualified professional to review your specific circumstances.

Sabrina Hoyt, CPA, is tax manager with the Grand Junction office. She brings to her duties experience in tax return preparation and planning for individuals, businesses, and nonprofits. She’s a member of the Colorado Society of CPAs. She holds a bachelor’s and master’s degree from the University of Nevada in Las Vegas.