When it comes to managing finances, understanding what you can write off on your taxes is crucial. Medical expenses can be a significant part of your budget, and knowing whether you can deduct them can save you money. Let’s dive into the details of writing off medical expenses, the rules surrounding it, and how you can maximize your deductions.
Medical expense deductions allow taxpayers to deduct certain medical costs from their taxable income. This can help lower your overall tax bill. However, there are specific rules and thresholds that you need to be aware of before you start calculating your potential deductions.
To qualify for a deduction, your medical expenses must exceed a certain percentage of your adjusted gross income (AGI). This threshold is 7.5%. This means if your AGI is $50,000, you can only deduct medical expenses that exceed $3,750.
Not all medical costs are eligible for deduction. The IRS has a specific list of what qualifies as a medical expense. Generally, these include costs for diagnosis, cure, mitigation, treatment, or prevention of disease. Here are some common examples:
Additionally, some expenses that might surprise you can also be deducted. For example, if you have to travel for medical care, you can write off mileage or transportation costs. Even certain home modifications for medical reasons can qualify!
While many costs can be deducted, there are also a number of expenses that the IRS does not allow. Cosmetic procedures are typically not deductible unless they are necessary for medical reasons. Here are some common exclusions:
It’s essential to keep track of your expenses and receipts throughout the year to ensure you’re only claiming what you’re entitled to. Misunderstanding what qualifies can lead to issues with the IRS.
Calculating your medical expense deduction can seem daunting, but it’s pretty straightforward once you understand the steps. First, gather all your medical expense receipts for the year. This includes everything from doctor visits to prescription costs.
Next, add up all your qualifying medical expenses. Once you have that total, compare it to the 7.5% threshold of your AGI. If your total medical expenses exceed this amount, you can deduct the difference from your taxable income.
Let’s say your AGI is $60,000. The 7.5% threshold would be $4,500. If you spent $8,000 on medical expenses, you would subtract $4,500 from $8,000, allowing you to deduct $3,500 on your taxes.
It’s important to note that you can only deduct expenses for the tax year in which they were paid. If you paid for a medical service in December but didn’t receive it until January, you would need to claim it in the following tax year.
When it comes time to file your taxes, you’ll need to use Schedule A (Form 1040) to itemize your deductions. This is where you’ll list your medical expenses along with other itemized deductions like mortgage interest and charitable contributions.
Itemizing your deductions can be beneficial if your total deductions exceed the standard deduction for the current tax filing year
Deciding whether to take the standard deduction or itemize can significantly impact your tax return. If your medical expenses and other deductions total more than the standard deduction, itemizing is the way to go. However, if they don’t, you might be better off taking the standard deduction.
It’s beneficial to calculate both options to see which one gives you a better tax outcome. Many tax software programs can help you with this, or you can consult a tax professional for guidance.
There are several special circumstances that can affect your ability to deduct medical expenses. For example, if you are self-employed, you may be able to deduct health insurance premiums directly from your income. This can be a significant benefit for freelancers and small business owners.
Additionally, if you have a Health Savings Account (HSA) or Flexible Spending Account (FSA), you can use these funds to pay for qualified medical expenses tax-free. Contributions to these accounts can also reduce your taxable income.
The Affordable Care Act (ACA) has changed the landscape of health insurance and medical expenses. Under the ACA, many preventive services are covered without any out-of-pocket costs, which can help reduce your overall medical expenses. However, it’s essential to understand your specific plan and what it covers.
Furthermore, if you receive premium tax credits to help pay for health insurance, you cannot deduct those premiums on your taxes. It’s crucial to keep these factors in mind when calculating your medical expense deductions.
Keeping thorough records is vital when it comes to claiming medical expense deductions. The IRS requires you to have documentation for all expenses you plan to deduct. This means saving receipts, invoices, and any other relevant paperwork.
Consider creating a dedicated folder or digital file for your medical expenses throughout the year. This can make it much easier to gather everything when tax season rolls around. Additionally, tracking your expenses in real-time with an app like Everlance can help you stay organized and ensure you don’t miss any deductions.
If you find the process of calculating and filing medical expense deductions overwhelming, consider using tax software or hiring a tax professional. Many tax software programs offer user-friendly interfaces that guide you through the process step-by-step.
A tax professional can also provide personalized advice and help you navigate any complicated situations. They can ensure you’re taking advantage of all available deductions and credits, potentially saving you money in the long run.
Writing off medical expenses can be a valuable way to reduce your tax burden, but it requires careful planning and understanding of the rules. By keeping track of your expenses, knowing what qualifies, and deciding whether to itemize or take the standard deduction, you can maximize your savings come tax time.
Whether you’re dealing with regular medical costs or unexpected health issues, understanding how to navigate medical expense deductions can make a significant difference in your financial health. So, gather those receipts, crunch the numbers, and make the most of your medical expense deductions!
Ready to take the hassle out of tracking your medical expenses? Join over 4 million users who have turned to Everlance for effortless mileage & expense logging
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Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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