Tuesday, March 20, 2012

Medical expenses - what's deductible?

Medical expenses can be a confusing deduction for many taxpayers.  What exactly is deductible?  And why don't all my medical expenses help reduce my taxes?

Medical expenses only help if they exceed 7.5% of your Adjusted Gross Income (AGI). To give you a ballpark of how much that is, if your income is $50,000, you will need over $3,750 in medical expenses before they might reduce your taxes.  That is the first hurdle.

The second hurdle is the standard deduction.  Even though you may have over 7.5% in medical expenses, your other itemized deductions (mortgage interest, property taxes, charitable donations, etc) , may be less than the standard deduction.  For your 2011 taxes, the standard deduction for a single person is $5,800, and for married couple filing jointly it's $11,600.  For those over 65 it's even higher.  So if you don't normally itemize, the excess medical expenses might not help you on your Federal retun.

There is one thing to keep in mind even if you don't itemize.  The excess medical expenses (i.e., those over 7.5%) are one of the few deductions that you can use on your Ohio return.  This will reduce your Ohio tax even if you don't itemize on the Federal.

What medical expenses can be included?  Co-pays and co-insurance for doctors, dentists, hospitals, labs, prescriptions, as well as contacts and eye glasses. Even mileage to medical appointments can help, though at a lower rate than business miles.

Your health insurance premiums are deductible ONLY if they are not already a pre-tax deduction through your payroll.  Check your pay stub or your payroll department to find out for sure.  Medicare B and COBRA premiums are examples of premiums that are not already pre-tax.  Long term care insurance can be included as a medical expense.  If you are self-employed, your health insurance premiums are a medical expense, but they get a more favorable treatment as an adjustment to your income.

What isn't deductible?  Over-the-counter medications, like cold medicine and tylenol, and first-aid items like band-aids and neosporin.  Plastic surgery is not allowed as a deduction.  Vitamins and nutritional supplements are pretty much never deductible (unless prescribed by a physician).  Your health club membership?  Nice try, but not a medical expense - even if your doctor tells you to exercise more!

More next time on Health Savings Accounts.

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