By A.J. Gross, C.P.A., E.A.
Medical and dental costs can be tax deductible. However, most people don’t realize that you need to pay a large amount of out-of-pocket medical costs to get a tax deduction.
AGI Threshold – Generally, the sum of all income reported on your tax return is considered your Adjusted Gross Income, AGI. For example, your spouse and you both have a job. Combined you make $100,000 in wages. You have no other income to report. Your AGI is $100,000.
The AGI Threshold for medical deductions is 10% of your AGI. In other words, your out-of-pocket medical payments have to be greater than 10% of your AGI. Your AGI is $100,000. 10% of $100,000 is $10,000. Your out-of-pocket medical payments have to be greater than $10,000 to get a deduction. If your out-of-pocket medical payments are $7,600, you will not get a deduction as $7,600 is less than the $10,000 threshold. However, if your medical payments are $14,300, $14,300 is greater than the $10,000 threshold. You can deduct the difference between $14,300 and $10,000 which is $4,300 for out-of-pocket medical payments.
The AGI Threshold for persons over the age of 65 is 7.5% of AGI. This is a temporary threshold. The temporary threshold for person over 65 will expire on December 31, 2016.
Type of Medical Deductions – You can deduct medical and dental costs that were not reimbursed by your insurance, flex plan, Health Savings Plan (HSA), or any other source. Health insurance premiums paid out of your pocket are deductible. A couple of examples are Medicare deducted from social security benefits and medical insurance bought through the Health Insurance Marketplace.
Here is a list of unusual medical expenses that may be deductible. Abortion, Acupuncture, Alcoholism, Artificial Limb, Artificial teeth, Christian Science Practitioner, Prescriptions, Guide Dog, Lead-Based Paint Removal, Transplants, Stop-Smoking Programs, Vision Correction Surgery, home improvements for medical reasons, Weight-Loss Program.
Of course there are expenses thought to be medical related that are generally not deductible. Controlled Substances, Cosmetic Surgery, Dancing Lessons, Diaper Service, Funeral Expenses, Hair Transplant, Health Club Dues, Maternity Clothes, Nutritional Supplements, Swimming Lessons, Teeth Whitening, Veterinary Fees, Weight-Loss Program (Yes Weight-Loss Program is listed twice, deduction depends on circumstances).
Read IRS Publication 502, Medical and Dental Expenses, for more information on Medical Deductions.
A.J. Gross, C.P.A., E.A. is President of ALG Tax Solutions. A.J. Gross can be contacted at AJGross@algtaxsolutions.com or www.ALGTaxSolutions.com.
This column was printed in the March 22, 2015 - April 4, 2015 edition.