Are medical deductions worth my time?

Renner Business News, February 15, 2018

Tax Prep Tip:  are medical deductions worth my time?

It’s too late for the Big Game, and too early for March Madness.  Yet there’s a universal event taking place in dining rooms and home offices all across America.  You’re probably about to join in yourself.  This is the time when taxpayers sit down and pull together their tax reporting statements and deductions, to get their tax information ready for the preparer.

When it comes to medical expenses, summarizing them can be tedious.  No one wants to spend any more time on this than necessary, so we’re sharing some of the most frequently asked questions about medical deductions, to help you keep the ball rolling.

Is it worth my time to pull together all my medical expenses?

Thanks to the Tax Cuts and Jobs Act, the 2017 medical deduction threshold is 7½% of adjusted gross income *.  For example, if your total gross income is $200,000, only your medical expenses in excess of $15,000 are going to be deductible.  Does that help you decide?  Many taxpayers with two wage earners and good insurance, don’t even get close to deducting medical expenses.

What medical expenses are deductible?

Deductible medical expenses include the costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs of treatments affecting any part or function of the body, for yourself and your dependents.  Some common medical expenses include amounts you pay for:

  • Doctors,
  • Hospitals,
  • Dentists,
  • Other medical practitioners,
  • Equipment,
  • Supplies,
  • Diagnostic devices,
  • Prescription drugs,
  • Mileage at 17 cents per mile,
  • Health insurance premiums, and
  • Long-term care insurance premiums within limits.

What about nursing care?

The cost of care is deductible for individuals unable to perform at least two activities of daily living for at least 90 days, or those requiring substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.  Costs include medical and nursing treatment as well as maintenance and personal care such as cooking and cleaning.

What if my insurance paid the bill?

Medical expenses are NOT deductible if they were paid or reimbursed by your health insurance or paid from your Health Savings Account or Flexible Spending Account.

What if I’m self-employed?

Your health insurance premiums are generally deductible on the front page of your individual return as a reduction of adjusted gross income.  This is better than taking them as an itemized deduction, so don’t include self-employed health insurance premiums in the amount of medical deductions needed to get you over the 7½% threshold.

My employer deducts insurance from my pay pretax…

You’re already getting a deduction for these health insurance premiums because they’re excluded from your taxable wages on your W-2.  You can’t deduct health insurance premiums again if your employer deducts them from your pay pretax.

OK, my medical deductions will probably exceed 7½ % of my income.  Should I start gathering receipts?

First make sure you benefit from itemizing your deductions at all.  Married taxpayers already get a standard deduction of $12,700 ($6,350 for single taxpayers) without even trying.  If all your deductions from medical, interest, taxes and charitable contributions total less than that, you’re better off taking the standard deduction.

*Adjusted Gross Income includes all your taxable income on the front page of your tax return reduced by certain adjustments like deductible IRA contributions and self-employed health insurance.

NOTE:  there are many more details related to the deductibility of medical expenses.  This is just a general summary of basic concepts.  To find out how this information applies to your facts and circumstances, consult your tax advisor.

Learn more about Renner individual tax services.

Read more Renner Business News

©2018 Renner and Company, CPA, P.C. All Rights Reserved.