How to Deduct Medical Expenses: A Guide to Medical Tax Deductions

When it’s time to file your taxes, it’s important to take advantage of every applicable deduction. Being proactive allows you to maximize your refund and reduce the amount you owe to the government. People can sometimes miss out on deductions that save them money, and a common one that people miss is medical expenses. Check out this guide on deducting these expenses and saving big during tax season.

What Is a Medical Expense Deduction?

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The medical expense deduction is qualified, non-reimbursed health care costs that the IRS allows you to list on your tax return form to reduce your taxable income. The IRS notes that you can deduct any medical expenses that exceed 7.5% of your adjusted gross income. If you file a joint return with your spouse, note that your AGI is the combination of both your AGIs.

For instance, imagine that your AGI is $60,000 and your spouse’s AGI is $40,000. Your combined AGI on your tax form would be $100,000, and 7.5% of $100,000 is $7,500, meaning you can deduct any medical expenses that exceed $7,500. If the medical bills between you, your spouse, and your children equal $10,000, you could deduct $2,500.

Understanding What Qualifies as a Tax-Deductible Medical Expense

The IRS allows you to deduct the health and dental care expenses you paid for yourself, your spouse, and your dependents, though the expenses must meet certain criteria. For instance, you can’t include expenses that your insurance company reimbursed. Additionally, you can only include expenses you paid during the tax year. For instance, if you paid for a surgery out-of-pocket in 2022 but are filing for the 2021 tax year, you’ll have to wait until the 2022 tax year to deduct the surgery.

Qualified expenses include payments to doctors, nursing home care, and prescription drugs. You can deduct admission and transportation to medical conferences concerning diseases that you, your spouse, or your dependents have, but you can’t deduct meals and lodging for these trips. Other exclusions include funeral expenses, over-the-counter medicines, and cosmetic surgery.

Taking Advantage of Overlooked Expenses

Many people overlook health care bills that the IRS considers tax-deductible medical expenses. Knowing about these overlooked expenses can help you push your costs over the 7.5% threshold and ensure you qualify for the deduction. For instance, even though over-the-counter medications don’t count, the IRS makes an exception for nonprescription insulin. You might also be surprised to learn that you can deduct supplies that assist with lactation, such as breast pumps. People with disabilities can also benefit from overlooked expenses. 

You can deduct the cost of adaptive equipment like wheelchairs, prosthetic devices, and telecommunication devices that assist people who are deaf. If you install permanent features in your home to accommodate a disability, this expense may also qualify. Accommodations can include ramps, larger doorways, and lower kitchen cabinets as long as their cost isn’t below the amount that increases the value of the property. For instance, if a $20,000 pool increases the home’s value by $25,000, it wouldn’t be a qualified expense. View the IRS Publication 502 for a comprehensive guide to tax-deductible medical expenses.

Itemizing Deductions When Filing

When filing your taxes, you can choose the standard deduction or opt to itemize deductions. The standard deduction is a popular option, as it reduces your taxable income even if you have no qualifying tax credits. If you want to deduct medical expenses, you’ll have to itemize instead of using the standard deduction. This route involves more tax preparation but can help you save lots of money, especially if you have expensive medical bills.

Either by yourself or with the help of a professional accountant, you can fill out the Schedule A form. The first section is for listing medical and dental expenses, though you can get other tax breaks by completing sections for gifts to charity and theft losses. After filling out the Schedule A form, you can submit it along with your 1040.

Considering Your Filing Status

As we mentioned earlier, filing a joint tax return means you can deduct medical bills greater than 7.5% of your and your spouse’s combined AGI. Depending on your salaries and total expenses, it can be beneficial to file separately instead of jointly. For instance, imagine that your joint AGI is $100,000 and your combined medical bills are $7,000, with $6,000 of them coming from your partner. Because the combined medical bills are less than 7.5% of your AGI, or $7,500, you can’t take advantage of the medical expense deduction.

Your independent AGI is $70,000, and your partner’s AGI is $30,000. Using your tax knowledge, you decide to file separately to take advantage of the medical expense deduction. If 7.5% of your partner’s AGI is $2,250, they can deduct medical bills that are greater than this amount. Because their medical bills equaled $6,000, they can deduct $3,750.

While this deduction is clearly bigger than the $0 medical expense deduction that you would get if you filed jointly, it’s important to note that you miss out on deductions exclusive to married couples. Missing out on these deductions can be worth it if they offer less than the medical expense deduction, so consider talking to a CPA to determine the best course of action.

Saving Receipts

Even if you don’t think you’ll accrue enough health care bills to qualify for the medical expense deduction, get in the habit of maintaining thorough records. You can request receipts from your doctor’s office and pharmacy after every visit and store them in a safe place. You might also obtain electronic receipts or scan physical copies into your computer.

These receipts prove you spent money on non-reimbursed expenses and allow you to submit supporting documentation with your tax return. If the IRS audits you, you have records to prove that you accurately reported your expenses. It’s important to have the necessary documentation to pass an audit or you can face significant penalties.

We hope this guide helps you use your costly medical bills as much-deserved tax deductions. If you want help from expert CPAs, contact Pasquesi Sheppard today. Our team is here to help you navigate tax season and maximize your refund.