Unexpected medical expenses may result in extensive debt and other financial troubles. If you’re not planning on an emergency room visit, extensive dental procedures, or a hospital visit, these bills can wreak havoc on your budget. In severe cases, it’s common for families to file for medical bankruptcy if they’re not prepared for expensive medical treatments.
It’s important to understand ways to reduce the costs of medical expenses, such as deducting them from your taxes. By learning more about when and how you can claim tax deductions on your medical expenses, you’ll ensure you’re doing all you can to reduce your debt.
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What Is Medical Expense Deduction?
When you qualify for a medical expense deduction, the Internal Revenue Service (IRS) deducts the amount of taxes you owe from your adjusted gross income (AGI), or your total income including certain deductions, during the year.
If you incurred medical expenses throughout the year and you didn’t get them reimbursed through health insurance, medical expense crowdfunding and donations, or debt forgiveness, you may be able to claim them as tax deductions.
Not all medical expenses are tax deductible. You must also meet certain IRS qualifications before you can deduct medical expenses from your taxes. When you file your tax return, it’s important to know which medical expenses you can claim and how to properly claim them so you can take advantage of this deduction.
How Much Can You Deduct for Medical Expenses?
Not all the medical expenses you incur throughout the year are tax deductible. You can only deduct medical expenses that are higher than 7.5% of your AGI.
For example, if your AGI is calculated at $50,000, you can deduct medical bills from your taxes that you paid that are higher than $3,750. Therefore, if your medical bills throughout the year were equal to $10,000, you can claim $6,250 as a deduction on your taxes for the year.
Which Kind of Medical Expenses Are Tax-Deductible?
The medical expenses you use in your calculations must meet the IRS’s qualifications. Not all medical expenses you incur are tax deductible and can be used to meet the threshold set by the IRS. There is an expansive list of medical expenses that are tax deductible, which include the following:
- Prescription drugs;
- Transportation and admission expenses for conferences or educational opportunities focused on medical conditions you or an immediate family member are diagnosed with;
- Weight-loss programs if a doctor diagnosed you with obesity or another disease attributed to being overweight;
- Payments to doctors, surgeons, or medical practitioners;
- Nursing home or hospital care expenses;
- Medically necessary equipment and accessory purchases, such as eyeglasses, wheelchairs, hearing aids, and service animals;
- Transportation charges you incurred when traveling to and from medical care facilities;
- Payments to dentists;
- Acupuncture treatments;
- Payments to psychiatrists or psychologists.
Insurance premiums you pay for long-term care insurance or medical care may also qualify for the tax deduction. However, this is only the case if your employer doesn’t pay for these premiums and you can only use the amount you paid out of pocket after taxes.
The medical expenses you claim as tax deductible cannot have been reimbursed already and must have been paid at some point during the year. Medical expenses that don’t qualify for a tax deduction include the following:
- Medicines you buy over-the-counter;
- Toiletries or cosmetics, such as toothpaste;
- Most types of cosmetic surgeries;
- Vacation expenses;
- Nicotine patches or gum you bought without a prescription;
- Burial or funeral expenses.
How to Deduct Medical Expenses
If you incur medical expenses that qualify for the tax deduction, keep your receipts and records. You should have organized and thorough records that include pharmacy receipts, medical bills, and prescription records. These help you add up the total eligible expenses you paid for throughout the year so you can confirm that you qualify for the tax deduction. The IRS may also ask for these records to prove you’ve incurred the expenses you’re claiming.
If your medical expenses qualify for a tax deduction, you cannot take the IRS’s standard deduction and you must itemize your deductions. If you complete these calculations and realize that the standard deduction is higher than your itemized deduction, it’s more financially beneficial to use this standard deduction than to deduct your medical expenses from your taxes.
It’s also important to pay attention to your tax filing status. If you file jointly with your spouse, you can only deduct qualifying medical expenses that are greater than 7.5% of your combined AGI. However, if you file separately, your AGI is the only income used to calculate this threshold.
Medical Expense Deduction Form
You must complete Schedule A on Form 1040 to itemize your tax deductions and claim the deduction for your medical expenses. This form allows you to break down the expenses and payments you made throughout the year that may be tax deductible. Follow along with this form to include eligible medical and dental expenses, charitable contributions, and other qualifying expenses.
When you finish listing all eligible tax deductions, Schedule A helps you calculate your total in itemized deductions. Compare this total to the standard deduction you qualify for with the IRS. If your itemized deduction total is higher, use this calculation as your deduction when calculating your tax refund or tax liability.
You’re required to submit your completed Schedule A with your other tax forms when filing your taxes. The IRS may also ask you for receipts or proof of the expenses or contributions you claim on Schedule A.
Medical expenses are a financial burden and may send your budget into a tailspin if you aren’t prepared for them. By reviewing the medical expense tax deduction laws, you can learn more about how these expenses may help reduce your tax liability. If it makes sense for you to itemize your tax deductions, consider the medical expenses you incurred throughout the year and include eligible expenses to lower your tax liability.
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