McKee Financial

4-13-2020 Newsletter: Can I Deduct Medical Expenses?

You should always consult your tax advisor when making decisions on what is acceptable to deduct on your taxes.  The following article will hopefully help you have a better understanding of what could possibly be deductible.  Things like your supply of Flintstone vitamins might not be deductible, but your trip to the dentist might be deductible.

 

Can I Deduct Medical Expenses? 

 

Let’s look at an example to clear this up. Let’s say that after you subtract your deductions from your taxable income, you’re left with $60,000. Let’s also say you have $7,500 of medical expenses for the year. How much of your medical expenses can you deduct? Well, to figure that out, you would multiply $60,000 by 0.075 (7.5%) to get $4,500. That’s your threshold. Everything above $4,500 would be deductible. In this case, you could deduct $3,000 of your medical expenses. Typically, the lower your AGI the more deductions and credits you’re eligible to get. Cha-ching!

Which Medical Expenses Are Deductible?

 

Let’s look at an example to clear this up. Let’s say that after you subtract your deductions from your taxable income, you’re left with $60,000. Let’s also say you have $7,500 of medical expenses for the year. How much of your medical expenses can you deduct? Well, to figure that out, you would multiply $60,000 by 0.075 (7.5%) to get $4,500. That’s your threshold. Everything above $4,500 would be deductible. In this case, you could deduct $3,000 of your medical expenses. Typically, the lower your AGI the more deductions and credits you’re eligible to get. Cha-ching!

 

Which Medical Expenses Are Deductible?

Thankfully, a lot of your medical expenses are tax deductible.

 

The IRS defines medical expenses as any costs related to diagnosing, treating or preventing disease.1 

The IRS defines medical expenses as any costs related to diagnosing, treating or preventing disease.1 And an expense has to meet a few criteria to qualify as a medical expense. These include:

  • Any medical services provided by physicians, surgeons, dentists and other medical professionals
  • Medications
  • Medical devices, equipment and other medical supplies
  • Health and dental insurance premiums—as long as they're not reimbursed by your employer and the premiums are paid using after-tax dollars
  • Long-term care and long-term care insurance
  • Transportation and lodging costs if you’re having to travel to a health care facility, including mileage at a rate of 20 cents per mile 2

You can only include any medical and dental expenses you paid the tax year you’re filing for. So, if you had a root canal (ouch) in January 2020, you won’t be able to deduct that expense until you file your 2020 taxes in 2021. Whomp whomp. (But hey, that’s something to look forward to next year!)

 

Also, you can include any medical expenses you pay for someone else—like your spouse or a dependent—in addition to any you’ve paid for yourself. That definitely helps!

 

Which Medical Expenses Are Not Deductible?

 

Alright, this might be a bummer, but we have to mention it. Expenses you won’t be able to deduct include things like cosmetic procedures, nonprescription drugs (except for insulin) or purchases made for general health and wellbeing. So those Flintstone vitamins you buy for your kids (be honest—you eat them too) can’t be deducted.

Other things you can’t deduct include the gym membership you’ve been paying for all year but haven’t stepped foot in since January (don’t deny it), that $10 wheat grass smoothie (but hey—at least it’s healthy), or medical expenses paid in a different year (if you pay it in 2019 it can only be included in the 2019 tax year).

Let’s talk tax-free spending accounts for a minute. If you have a flexible spending account (FSA), health savings account (HSA) or a health reimbursement arrangement (HRA), the funds in these accounts have essentially already been deducted, because they’re contributed before taxes or reimbursed with tax-free money. So any medical expenses you cover with these accounts can’t be deducted.

 

If you have a flexible spending account (FSA), health savings account (HSA) or a health reimbursement arrangement (HRA), the funds in these accounts have essentially already been deducted, because they’re contributed before taxes or reimbursed with tax-free money. So any medical expenses you cover with these accounts can’t be deducted.

 

You’ve already gotten the tax advantage, so you can’t double up.

 

How to Claim Your Medical Expenses Deduction

 

In order to claim the medical expense deduction, you’ll have to itemize your expenses. To do that, you’ll use the 1040 form when you file your taxes and attach Schedule A (the sheet you’ll list your expenses on). Here’s a quick walk-through of the Schedule A medical expense section:

  • Line 1: Add up all of your medical expenses and put the total here.
  • Line 2: Remember how we talked about AGI? Calculate yours and write it on this line.
  • Line 3: Find 7.5% of your AGI and enter it here. (You’ll just multiply your AGI by 0.075 for this one.)
  • Line 4: Enter the difference between 7.5% of your AGI and your medical expenses total here.

If your total medical expenses are less than 7.5% of your AGI then you won’t be able to deduct them because you won’t hit the threshold. If your medical expenses are more, you can deduct the difference! For instance, if your AGI is $5,000 and your medical expenses equal $4,000, you can’t deduct them. If your expenses were $6,500, you could deduct $1,500. Simple!

Now keep in mind, if your itemized deductions (including your medical deductions) are less than the standard deduction ($12,200 for singler filers and $24,400 for married couple filing jointly for the 2019 tax year), you won’t want to itemize. Take the standard deduction! Aim for whichever option saves you the most money.

We know it can be a pain to track everything down and do the calculations, but if your eligible medical expenses end up being more than the standard deduction, it’s worth the little bit of hassle!  

 

Get a Tax Pro!

 

We know—that was a lot! And if you’ve got a complicated tax situation or if you’re just plain confused about how your medical expenses can affect your taxes, working with a trusted tax expert is a smart move. Missing out on deductions could end up costing you more than it would to work with a pro.

A tax Endorsed Local Provider (ELP) can help. They’ve got years of experience and can walk you through your tax filing with confidence. And the sooner you connect with a pro, the sooner you can breathe a sigh of relief. 

 

As always, this material is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate.

 

Sources:

  • Schedule A walk through: https://www.irs.gov/pub/irs-pdf/f1040sa.pdf
  • 1 & 2: https://www.irs.gov/publications/p502
  • https://www.daveramsey.com/blog/can-I-deduct-medical-expenses

 

...and for the History Lovers... This Week in History

 

April 13, 1976

The U.S. Federal Reserve begins issuing $2 bicentennial notes.

 

April 14, 1828

The first edition of Noah Webster's dictionary is published.

 

April 15, 1923

Insulin becomes generally available for people suffering with diabetes.

 

April 16, 1922

Annie Oakley shoots 100 clay targets in a row, setting a woman's record.

 

April 17, 1964

Jerrie Mock becomes first woman to fly solo around the world.

 

April 18, 1923

Yankee Stadium opens with Babe Ruth hitting a three-run homer as the Yankees beat the Red Sox 4-1.

 

April 19, 1880

The Times war correspondent telephones a report of the Battle of Ahmed Khel, the first time news is sent from a field of battle in this manner.  There are over twenty calculators

 

Sources:  website: Historynet.com 

 

The McKee Financial Resources LLC Website

 

One of the most undervalued resources at your fingertips might just be our website.  This week I’m going to give you a glimpse into the site and share with you our Loan & Credit Card Calculator section of the site.  This is just a small portion of our calculator section of the website.  We have over twenty additional calculators I’m not even mentioning this week.  Please feel free to take a moment and start exploring our amazing website. 

http://www.mckeefinancialresources.com/

 

Loan & Credit Card:

 

  • Loan Payoff Calculator

How much will it cost to pay off a loan over its lifetime?

 

  • Home Affordability Calculator

Estimate of the maximum amount of financing you can expect to get when you begin house hunting.

 

  • Mortgage Refinancing Calculator

Determine whether you should consider refinancing your mortgage.

 

  • Credit Card Debt Calculator

How long WILL it take to pay off my credit card?

 

  • Lease Payment Calculator

How much would your monthly lease payments be?

 

  • Car Affordability Calculator

How much can you afford to pay for a car?

 

Source: http://www.mckeefinancialresources.com/learning_center/calculators/

 

 

 

McKee Financial Resources Inc.

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Email:  brian@MckeeFinancialResources.com

 

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