TCJA temporarily lowers medical expense deduction threshold

Lake Forest and greater Chicago taxpayers know that medical expenses can take a bite out of the pocketbook, and fortunately the Internal Revenue Service (IRS) gives taxpayers some relief in case a costly health circumstance arises. Learn which medical expenses are tax deductible, and learn how the Tax Cuts and Jobs Act (TCJA) has affected the medical expense tax deduction threshold, here at Pasquesi Sheppard LLC in Lake Forest, IL.

Are Medical Expenses Tax Deductible?

As mentioned earlier, medical expenses are tax deductible, with limitations.

What Medical Expenses Are Tax Deductible?

Medical expenses are tax deductible only if they’re “qualified.” What medical expenses “qualify” for tax deductions? The costs of diagnosis, cure, mitigation, treatment or prevention of disease, and the costs for treatments affecting any part or function of the body all qualify as medical expenses, and are thus tax deductible. For clarification, examples include payments to your physician at Northwestern or payments to your Lake Forest dentist. Equipment, supplies, diagnostic devices, and prescription drugs also qualify as medical expenses you can write off.

Mileage driven for healthcare-related purposes is also deductible at a rate of 17 cents per mile for 2017 and 18 cents per mile for 2018. Health insurance and long-term care insurance premiums can also qualify, with certain limits.

Expenses reimbursed by insurance or paid with funds from a tax-advantaged account such as a Health Savings Account or Flexible Spending Account can’t be deducted. Likewise, health insurance premiums are not deductible if they’re taken out of your paycheck pretax.

The AGI Threshold

Before 2013, you could claim an itemized deduction for qualified unreimbursed medical expenses paid for you, your spouse and your dependents, to the extent those expenses exceeded 7.5% of your adjusted gross income (AGI). AGI includes all of your taxable income items reduced by certain “above-the-line” deductions, such as those for deductible IRA contributions and student loan interest.

As part of the Affordable Care Act, a higher deduction threshold of 10% of AGI went into effect in 2014 for most taxpayers and was scheduled to go into effect in 2017 for taxpayers age 65 or older. But under the TCJA, the 7.5%-of-AGI deduction threshold now applies to all taxpayers for 2017 and 2018.

However, this lower threshold is temporary. Beginning January 1, 2019, the 10% threshold will apply to all taxpayers, including those over age 65, unless Congress takes additional action.

Consider “Bunching” Expenses Into 2018

Because the threshold is scheduled to increase to 10% in 2019, you might benefit from accelerating deductible medical expenses into 2018, to the extent they’re within your control.

However, keep in mind that you have to itemize deductions to deduct medical expenses. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. And with the TCJA’s near doubling of the standard deduction for 2018, many taxpayers who’ve typically itemized may no longer benefit from itemizing.

Rely On Pasquesi Sheppard As Your Lake Forest CPA!

Because the threshold is scheduled to increase to 10% in 2019, you might benefit from accelerating deductible medical expenses into 2018, to the extent they’re within your control.

However, keep in mind that you have to itemize deductions to deduct medical expenses. Itemizing saves tax only if your total itemized deductions exceed your standard deduction. And with the TCJA’s near doubling of the standard deduction for 2018, many taxpayers who’ve typically itemized may no longer benefit from itemizing.

If you have questions about whether you can qualify for a deduction on your 2017 tax return, or about how the TCJA affects you and your Lake Forest family, don't hesitate to contact us today. We can also help you determine whether bunching medical expenses into 2018 will likely save you tax. 


© 2018

The IRS has announced 2022 amounts for Health Savings Accounts
The IRS recently released guidance providing the 2022 inflation-adjusted amounts for Health Savings Accounts (HSAs). Fundamentals of HSAs An HSA[...]
Retiring soon? 4 tax issues you may face
If you’re getting ready to retire, you’ll soon experience changes in your lifestyle and income sources that may have numerous[...]
Withholding Tax – IL-941
The Form IL-941 is for small business owners with employees working in the state of Illinois. You'll need to withhold[...]