Medical costs seem to increase every year. There is a way to get Uncle Sam to foot some of the doctor bills, but you need to make sure you know and follow the rules.
The Internal Revenue Service lets you deduct medical costs as long as they are more than 7.5 percent of your adjusted gross income. This percentage may seem unattainable at first glance, but with a little tax triage you might just meet it.
Don't overlook the medical expenses of everyone listed on your tax return. Medical and dental bills for you, your spouse and your dependents count toward reaching the allowable deduction limit. You might be able to count some medical expenses you paid for a parent, even if Mom or Dad isn't considered your dependent for exemption purposes.
And while it's not something we want to think about, don't forget about medical bills you paid for a deceased dependent in the year they were paid, whether before or after the person passed away.
Overlooked medical costs
Once you're confident you know just whose costs are covered, make sure you don't miss one.
Allowable, often overlooked, medical deductions:
- Travel expenses to and from medical treatments. The IRS evaluates the standard cents-per-mile allowance each year. For 2009, you can deduct eligible medical travel at 24 cents per mile. In 2010, the mileage rate deduction is 16.5 cents.
- Insurance payments from already taxed income. This includes the cost of long-term care insurance, up to certain limits based on your age.
- Uninsured medical treatments, such as an extra pair of eyeglasses or set of contact lenses, false teeth, hearing aids and artificial limbs.
- Costs of alcohol- or drug-abuse treatments can be counted on your Schedule A.
- Laser vision corrective surgery is a tax-allowable procedure.
- Medically necessary costs prescribed by a physician. That means if your doctor told you to add a humidifier to your home's heating and air conditioning system to relieve your chronic breathing problems, the device (and additional electricity costs to operate it) could be at least partially deductible.
- Some medical conference costs. You can count admission and transportation expenses to the conference if it concerns a chronic illness suffered by you, your spouse or a dependent. Meals and lodging costs while at the seminar, however, are not deductible.
Health-conscious taxpayers also have a friend in the IRS. Weight-loss programs, in some instances, now might count as a deductible medical expense, joining the stop-smoking programs the agency approved earlier.
But don't try to cheat on your calorie intake or the IRS. The diet program must be medically necessary.
Acceptable situations include, for example, when a doctor recommends the regimen to reduce the health risks of obesity or hypertension.
Acceptable situations include, for example, when a doctor recommends the regimen to reduce the health risks of obesity or hypertension.
And don't be confused by the differences in your flexible spending account, or FSA, rules and IRS deductions on Schedule A. You can use FSA money to reimburse you for over-the-counter drug purchases. But when it comes to itemizing deductions at tax filing time, medications you picked up off supermarket shelves don't count. So you can throw away all those aspirin receipts you've been hoarding.
Special medical needs
If you have special needs, however, there are some costs you can write off. Take into account the cost of a wheelchair, crutches and equipment that enables a deaf person to use the telephone or that provides television closed-captioning. Don't forget a Seeing Eye dog or canine for the hearing-impaired, or the costs to retrofit your car with special hand controls or space to hold a wheelchair.
Some home remodeling also might be just the prescription for a tax break, as long as you follow your doctor's orders and IRS rules. If you need, for example, to add a chair lift to get up and down the stairs because of a medical condition, this is considered a legitimate expense.
Changes to your home to make it more accessible for a handicapped resident also are allowable.
Elevators, however, generally aren't deductible. The IRS considers this a structural change that could increase the value of your house and, therefore, doesn't allow it as a medical deduction.
In calculating residential remodeling as a medical deduction, keep in mind that you likely won't be able to write off the full costs on your tax return. If the improvement increases the value of your property, that amount is subtracted from the project's cost and the difference counts as a medical expense. The value added to your home isn't lost taxwise. It will increase its basis so that when you do sell, it will help you in reducing any possible taxes owed on that profit.
Household help to care for you or an ailing dependent isn't deductible either, even if it's recommended by your doctor. Such assistance, however, might help you qualify for the dependent care credit.
Nursing Home deductable expenses
You can include in medical expenses the cost of medical care in a nursing home, home for the aged, or similar institution, for yourself, your spouse, or your dependents. This includes the cost of meals and lodging in the home if a principal reason for being there is to get medical care.
Do not include the cost of meals and lodging if the reason for being in the home is personal. You can, however, include in medical expenses the part of the cost that is for medical or nursing care.
Who Can You Claim the Nursing Home Deduction for?
- Spouse
- Dependent / Qualifying Child - Defined as:
- Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew),
- At the end of 2007 was:
- Under age 19,
- Under age 24 and a full-time student, or
- Permanently and totally disabled,
- Lived with you for more than half of 2007, and
- Did not provide over half of his or her own support for 2007.
- Qualifying relative is a person – Defined as:
- Person who is:
- Son, daughter, stepchild, foster child, or a descendant of any of them (for example, your grandchild),
- Brother, sister, or a son or daughter of either of them,
- Father, mother, or an ancestor or sibling of either of them (for example, your grandmother, grandfather, aunt, or uncle),
- Stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law, or
- Any other person (other than your spouse) who lived with you all year as a member of your household if your relationship did not violate local law
Medical, but not tax deductible
Uncle Sam does set some additional medical deduction limits. As a general rule, he doesn't care how we look.
Cosmetic surgery, health-club dues or costs of a weight loss program that is not medically necessary aren't deductible.
Neither are hair transplant operations or, at the other extreme, electrolysis treatments.
And don't try to write off that expensive bottled water you have delivered each week. Sure H2O is critical to good health, but the tax collector thinks your tap water will suffice.
For a complete list of what the IRS will and won't allow you to count toward your medical deductions, check out Publication 502. You might find a few things there that apply to you -- maybe just enough to get you over that 7.5 percent deduction hurdle.
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