The Prescription for Medical Deductions

March 28, 2013

For Immediate Release

Contact: Gigi Thompson Jarvis

202.822.6232, x119                                                       

gjarvis@naea.org

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The Prescription for Medical Deductions

WASHINGTON, DC (March 28, 2013) — How do you know whether or not your medical and dental expenses can be deducted from your 2012 taxes? There are many considerations, and then it boils down to a simple formula: compute your adjusted gross income (AGI) and multiply that by 7.5 percent. Subtract this amount from your medical expenses, and what’s left is what is deductible.

Start this process by figuring out which of this year’s medical and dental expenses will qualify as deductions in Uncle Sam’s eyes. After reducing the expense by the amount paid by insurance, you can claim expenses incurred for diagnosis, cure, treatment and prevention of disease or for purposes affecting the function and structure of the body. Commonly overlooked expenses include: wheel chairs, glasses, dentures, bandages, fertility enhancement, pregnancy test kits, birth control pills, health insurance premiums including Medicare Parts B & D and certain types of long-term care insurance policies, stop smoking programs (if recommended by a doctor) and weight loss programs prescribed by a doctor to treat conditions such as obesity or hypertension.

Keep in mind that the costs of medical service must be claimed in the year paid, not necessarily the year received. If you are paying with a credit card, IRS considers the medical treatment paid for, regardless of how long it takes you to pay it off. Before you run up those credit cards, however, the tax advantages should be weighed against the cost of the interest.

Here’s the catch: you must have enough other itemizations (i.e., home mortgage interest, real estate taxes, charitable contributions, etc.) to beat the standard deduction. Therefore, you may technically have enough medical expenses, but if you don’t have enough “itemizations” on Schedule A to beat the standard deduction, you won’t benefit by deducting the expenses. The standard deduction for married couples filing a joint return for 2012 is $11,900; for single individuals and married couples filing separate returns, it’s $5,950; and for heads of household, the standard deduction is $8,700.

“After 20 years of preparing returns, what I have found is that most people who have high enough medical expenses to qualify are elderly,” said Allen L. Beatty, an enrolled agent with Apple Tax Services in Jackson, OH. “Generally, elderly people who own a home have paid it off in full for years and the largest item I usually find in itemized deductions is the home mortgage interest. This problem is compounded even more because once you are 65 you are entitled to an extra standard deduction of $1,450. My experience has been that medical deductions can seldom be claimed.”

Beatty went on to point out that because of the Affordable Care Act, the formula to beat the AGI is 10 percent in 2013. “Thus, for returns being prepared one year from now you must exceed 10 percent of AGI, as the first 10 percent of AGI will not count,” Beatty explains.

Even if you don’t qualify for the Schedule A deduction, some states have different thresholds and you may find you can use some of these expenses on your state income tax return. Hiring a federally-licensed tax practitioner to prepare your return will help ensure you take advantage of all the deductions and credits you are entitled to this tax season. To find an enrolled agent tax practitioner in your area, go to the “Find an EA” directory at www.naea.org.