Maximize Your Medical Expense Deductions This Year

Feb 5, 2016, 10:13 AM by Bryan Pavin
Maximize Your Medical Expense Deductions This Year January means tax season is around the corner. If you’re a caregiver assisting with taxes for a family member, this article can help you maximize their medical tax deductions for the year.

Are Medical Expenses Tax Deductible?

Yes. But as with most things relating to taxes, it doesn't end there, and it isn't that simple. Medical expenses for which you are reimbursed are not tax-deductible (for example, expenses covered by insurance or paid through Medicare). However, any expenses which you have incurred yourself can be partially deducted. In order to ensure your taxes are accurate, it is important to understand fully the rules regarding deductible medical expenses.

Deductible medical expenses are any qualifying medical expenses that exceed 10 percent of your adjusted gross income (AGI). To determine what expenses you can deduct (or "write off"), you must have an understanding of which expenses qualify, and which expenses exceed the limit imposed by the IRS. Let's discuss these in further detail.

Qualifying Expenses

In order to be tax deductible, medical expenses must meet certain criteria. For example, general hygienic products such as toothpaste and deodorant do not qualify, nor do over-the-counter and non-prescription drugs.

Preventative care, treatment, and surgeries do qualify, as does dental, hearing, and vision care (along with related appliances, such as glasses, contacts, dentures, and hearing aids). Visits to psychologists and psychiatrists can also be deducted. Additionally, it may be possible to deduct the costs of a medical alert device with a qualifying medical information plan. Finally, the IRS also lets individuals deduct travel-related expenses if they are specifically linked to medical care. This can include mileage on your car, a bus fare, or parking fees.

Deductible Threshold

It's important to restate that not all out-of-pocket expenses are tax deductible. Only medical expenses which exceed 10 percent of your adjusted gross income can be deducted. What does this mean? It means that a person who has an AGI of $50,000 per year will only be able to deduct medical expenses that he or she pays in excess of $5,000. For example, if your AGI is $50,000 and your out-of-pocket medical expenses for the year were $7,500, you would be able to deduct $2,500 of your total expense out of pocket – the initial $5,000 would not qualify, as that falls within the 10 percent threshold.

But That's Not All – There's More

Between Jan. 1, 2013 and Dec. 31, 2016, the IRS has a temporary exemption for individuals 65 years of age and older (along with their spouses). For these qualifying individuals, medical expenses that exceed 7.5 percent of their AGI can be deducted. To use the example above, assuming this temporary exemption applies, if your AGI is $50,000 and your out-of-pocket medical expenses for the year were $7,500, you would be able to deduct $3,750.

Don't Pay More in Taxes than Necessary

Deducting medical expenses may not be something that applies to you. If you are reimbursed for medical costs through insurance or Medicare, then there's nothing to deduct, as your expenses are essentially zero (even if you do, in fact, pay for this insurance). In fact, even if you do have out-of-pocket medical expenses, they still may not apply – remember, the threshold is 10 percent of your adjusted gross income. However, if you do have qualifying medical expenses that do exceed the threshold set by the IRS, you can and should deduct them. Don't pay more than you have to.

Looking for other ways to save as a caregiver? Learn about eight ways to save money on senior care here.