When filing taxes, everyone wants to minimize their tax burden as much as possible. There are various deductions that can be claimed on tax forms, and having significant medical expenses may also provide opportunities for tax savings.
Whether medical expenses can be deducted depends on whether they meet the Internal Revenue Service (IRS) definition. Eligible expenses must be incurred for the purpose of diagnosis, prevention, treatment, or rehabilitation of a disease or injury. To claim deductions, it’s crucial to keep all relevant receipts.
When filling out tax forms, you need to decide whether to use the standard deduction or itemized deductions. For the 2024 tax year, the standard deduction amounts are as follows: $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of households.
Individuals aged 65 and above or blind taxpayers are eligible for higher standard deduction amounts, which can help reduce tax burdens and alleviate financial strain in retirement. According to Kiplinger, single taxpayers aged 65 and above or blind can claim an additional $1,550, bringing the total standard deduction to $16,150. Similarly, for married couples filing jointly where one or both spouses meet the criteria, an extra $3,100 can be claimed, resulting in a total standard deduction of $32,300.
While you may have other itemized deductions available, it’s only worthwhile to itemize your deductions if the total exceeds the standard deduction. Given the higher standard deduction amounts currently, most individuals opt for the standard deduction.
The IRS only allows deductions for a portion of medical expenses. Only the portion of medical expenses exceeding 7.5% of your adjusted gross income (AGI) can be used for tax deductions. For instance, if your AGI is $50,000, only the medical expenses surpassing $3,750 can be deducted. Additionally, the total of all itemized deductions must exceed the standard deduction amount to have an impact.
If your state levies state income tax, some states have lower AGI thresholds for medical deductions, potentially allowing for more deductions at the state level. However, if your state does not impose income tax, these deductions cannot be claimed at the state level.
According to Investopedia, if you need to travel for medical purposes, you can deduct lodging expenses up to $50 per person per night. However, the accommodations should not have entertainment, vacation, or luxury purposes.
Mileage driven for medical purposes can also be tax-deductible. The IRS allows a deduction of 21 cents per mile, including trips to and from medical appointments or treatments.
TurboTax lists numerous medical expenses that can be deducted on Schedule A of Form 1040, including but not limited to:
– Fees paid to doctors, surgeons, dentists, chiropractors, psychologists, psychiatrists, etc.;
– Hospital expenses;
– Nursing home costs;
– Prescription drugs and insulin;
– Dentures, eyeglasses, hearing aids, wheelchairs, canes, service animals;
– Certain weight-loss programs;
– Medical transportation expenses;
– Unreimbursed insurance premiums, including long-term care insurance (parts A, B, D);
– Prosthetic devices;
– Rehabilitation and smoking cessation programs;
– Ambulance fees;
– Breast reconstruction surgery;
– Home modifications for medical equipment;
– And others.
The rules for deductions related to health insurance expenses differ for self-employed individuals compared to employees. Forbes notes that self-employed individuals who pay their entire health insurance premiums can deduct them in full. Moreover, this deduction is an above-the-line deduction, meaning it can be claimed even if itemizing deductions is not pursued.
– These medical expenses must not have been previously reimbursed;
– Medical expenses must have occurred within the tax year.
Expenses that cannot be deducted include:
– Cosmetic surgery;
– Controlled substances (such as marijuana, amygdalin), even if legal in your state;
– Hair removal, hair transplants;
– Gym membership fees;
– Health savings account-related expenses;
– Nutritional supplements;
– Over-the-counter medications;
– Surrogate expenses;
– Household services;
– Teeth whitening;
– Veterinary medical expenses;
– Funeral costs.
Medical expenses paid through a Flexible Spending Account (FSA) or Health Savings Account (HSA) cannot be double-deducted for tax purposes. TurboTax explains that since funds deposited into these accounts already enjoy tax benefits, these expenses cannot be deducted.
If you forgot to claim eligible medical expenses in a previous year, the IRS allows you to amend your tax return using Form 1040-X. You have up to three years to report these expenses.
In some cases, if spouses file taxes separately, it may lead to greater tax savings. NerdWallet mentions that if your spouse has lower income than you, their 7.5% threshold for medical bills will likely be lower than yours. If the medical bills belong to your spouse, filing separately could result in a higher deduction for medical expenses than filing jointly.
To further reduce tax liabilities, consider opening a Health Savings Account (HSA). While not suitable for everyone, an HSA can indeed save you a significant amount of money. Before opening an HSA, you must first purchase high-deductible health insurance.
Money deposited into an HSA is pre-tax income, allowing for immediate tax savings. As long as the funds are used for eligible HSA expenses, withdrawing from the account is tax-free. The money in the account can also earn interest and be accessed freely in retirement without penalties.
If you have substantial out-of-pocket medical expenses, you may be able to leverage these costs to decrease your tax burden. When combined with other deductible items, opting for itemized deductions may result in significant savings. Consulting a tax advisor can help you uncover more legal and cost-effective ways to save on taxes.