Schedule A: where your deductions come together. Schedule A lists all the deductions you are taking on your tax return. Those deductions include things such as out-of-pocket medical expenses, property and state taxes, certain types of interest, donations to charity, and a variety of other things. Today we’re focusing on the medical deductions portion of the Schedule A. Knowing the ins and outs of your medical expenses and how they affect your tax return may be quite different than what you think you already know. Let’s start by going over the basics.
So… vitamins are a type of medicine right? Wrong. The only expenses that can be used as a medical deduction are payments for prescriptions, doctor and dentist visits, health insurance, and even transportation to and from medical services. You CANNOT deduct expenses that were paid by your insurance company. You can only deduct expenses paid out-of-pocket. The main factor regarding medical deductions is that the expenses must be for a treatment or prevention of an illness or disease, whether it is mental or physical. Vitamins are not a technically a medicine and therefore cannot be deducted. There are also expenses that could be deducted in certain circumstances but not in others. For example, plastic surgery would be deducted if you needed it in order to fix a medical issue such as reconstruction of breasts after a person has had breast cancer. However, breast implants that a person buys purely for appearance reasons would not be deducted because they do not have a real effect on the functioning of the body.
Vroom, Vroom….! Screeeech! You can even drive your way to medical deductions. If you drive frequently for the sole purpose of medical treatment, you can deduct the money you spend on oil, gas, and any tolls you might pay. You cannot include expenses for your car insurance or general repairs. However, sometimes it may be more beneficial to use the standard mileage rate. The standard mileage rate is 23.5 cents for every mile driven for medical reasons. If you keep track of the number of miles you drove, you can multiply those miles by 23.5 cents and come to your deduction. Here’s an example to simplify things:
Rebecca was diagnosed with cancer during 2014. She lives in Chico, California, and must drive to Davis, California every week for different treatments and doctor appointments. This trip is approximately 200 miles round-trip. She estimates that she made that trip around 20 times during the year which would be a total of 4,000 miles. At the standard rate of 23.5 cents per mile, she would receive a deduction of $940. She spent $600 on oil and gas, so in this case, the optimal deduction would be to use the standard mileage rate instead of actual expenses spent on gas and oil.
If you are not certain whether or not a medical expense is deductible, consult your CPA or visit the IRS website to view an extensive list of expenses you can and cannot deduct.
Now for a bit of a downer… Just because you spend money on eligible medical expenses, does not mean you will get a deduction. You can only deduct medical expenses that are greater than 10% of your AGI. For example, if your AGI is $30,000, you can deduct any medical expenses that are above $3,000. If you spent $3,050 on medical expenses, you will only receive a deduction of $50. Therefore, the more money you make, the more medical expenses you must have in order for even a portion of them to be deducted at all. This is called “phase out”.
My recommendation for you is to keep an Excel spreadsheet recording your medical expenses. Categorizing them into “prescriptions”, “doctors and dentists”, “health insurance”, and various other categories, can make preparing your tax return very easy at the end of the year. Even if you have a CPA, your bill that you receive for your tax return preparation will be lower if he or she does not have to sift through every single medical receipt you have. After all that work, you may not even have enough medical expenses to receive a deduction. Staying organized is a huge help, not just regarding your medical expenses, but all you itemized deductions and income.
Feel free to comment below if you have any questions or feedback! Stay tuned to the Tax Bleep for all of your tax questions!