Medical Expense Deduction: What You Need to Know

Medical expenses can be overwhelming, particularly when trying to comprehend tax deductions. The medical expense deduction provides possible savings for individuals with significant healthcare costs. Understanding what qualifies for this deduction can significantly impact your finances.

What is the Medical Expense Deduction?

The medical expense deduction enables taxpayers to deduct specific medical expenses from their federal income tax returns. It is important to note that this deduction is available only for those who itemize their deductions instead of opting for the standard deduction.

To qualify for this deduction, your total medical expenses must exceed 7.5% of your adjusted gross income (AGI). For example, if your AGI is $50,000, only the medical expenses that exceed $3,750 can be deducted. This means that if your medical expenses totaled $6,000, you could deduct $2,250 ($6,000 - $3,750).

Who Can Benefit from the Deduction?

Many individuals can take advantage of the medical expense deduction. This includes people facing chronic health issues, those with high insurance premiums, and anyone who experiences significant out-of-pocket costs. The deduction is especially vital for older adults, who, on average, spend about $5,000 annually on healthcare, according to a 2022 study by the Kaiser Family Foundation.

Additionally, if you have supported family members with medical expenses, those costs can also be considered. For instance, if you paid $1,200 for a relative's medical procedures and $800 for their prescription medications, you could include those amounts alongside your qualifying expenses when filing.

Qualified Medical Expenses

The IRS allows a broad range of expenses to be deducted as long as they meet specific criteria. Examples of qualified expenses include:

• Hospital stays and surgeries: Costs incurred for necessary medical procedures.

• Prescription medications: Drugs prescribed by healthcare providers are the main qualification for deduction.

• Insurance premiums: Payments made for health insurance coverage.

• Dental care: Includes services like teeth cleaning and orthodontics.

• Medical equipment: Such as wheelchairs or blood sugar testing supplies.

  
  

However, it’s important to remember that not all expenses qualify. For example, procedures that are purely cosmetic, such as facelifts or botox, typically do not fit the criteria.

Keeping Track of Medical Expenses

Keeping organized records is essential for maximizing your medical expense deduction. Be diligent about saving receipts, invoices, and other related documents throughout the year.

Consider creating a dedicated system, such as a digital folder or a physical binder, to categorize these records by month. This approach makes it easier to compile your expenses during tax season and ensures that nothing is overlooked.

Filing for the Deduction

To claim the medical expense deduction, you need to complete Schedule A (Form 1040) and submit it along with your individual return. Make sure to fill out this form carefully, accurately reporting your total medical expenses and determining your deduction based on the applicable AGI percentage.

If you are unsure about what constitutes a qualified expense or how to accurately fill out your forms, consulting with a tax professional can provide clarity and support.

Maximizing Your Tax Savings

The medical expense deduction can significantly ease the financial burden of high healthcare costs. By understanding qualifying expenses, keeping detailed records, and filing correctly, you can unlock valuable savings during tax season.

Take the time to evaluate your medical expenses thoroughly and consider every eligible deduction available. This awareness can empower you to better handle the complexities of medical expenses and enhance your financial situation. If you’d like more information, feel free to reach out to The Center for Financial, Legal, and Tax Planning, Inc. at (618) 997-3436.