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Deducting Health Insurance Premiums & Healthcare Expenses on Your Taxes

The cost of healthcare has been growing much faster than inflation, and will likely continue that trajectory considering the changes implemented by the Patient Protection and Affordable Care Act. This unfortunate trend may leave you wondering if you have any recourse to save money and reduce the impact of costly healthcare at all.

Plus, if you were not covered by health insurance previously, you may have been required to purchase it with the implementation of the individual health insurance mandate in 2014. Though some income groups receive assistance to afford coverage, many do not and face a fine for not purchasing adequate coverage.

Fortunately, you may be able to effectively reduce your healthcare costs by taking advantage of the range of available healthcare-related tax deductions.

How to Claim Health-Related Tax Deductions

Through conventional deductions on Schedule A and a special tax break for self-employed workers, you can recover a lot of the money you’ve spent on health issues.

Schedule A
The most common and familiar method for lowering your tax liability due to health expenses is to itemize your deductions and include medical expenses on Schedule A. You can deduct qualified healthcare costs that are greater than 10% of your adjusted gross income (AGI). Though for many that income threshold is high, there are a range of expenses you can claim that qualify to meet it.

For example, if your AGI is $40,000 in 2013, then the 10% minimum would be $4,000. If your medical costs for the year are $5,000, then you can include the $1,000 difference in your itemized deduction for that year. If your medical expenses were less than $4,000, you won’t get any tax benefit.

Expenses that your employer or insurance company cover don’t count, and you can’t “double dip” your tax break by claiming deductions for anything you’ve paid for from your health savings account (HSA) or flexible spending account (FSA).

However, when you pay out of your own pocket, you can include all qualifying healthcare expenses you paid for yourself, as well as anything you paid for your spouse or your dependents. The key is to know every possible expense that can help you meet that 10% threshold. Start with these five, and talk with your accountant about more possibilities.

Health Expenses You Can Deduct

The full list of expenses that you can include is very long, and you can review every item on the IRS website. The five best ways to meet the 10% threshold are:

  1. Doctor Visits. Payments to any medical professional are deductible, and your primary physician isn’t the only one whose costs can be applied. Charges from nurse practitioners, chiropractors, osteopaths, Christian Science practitioners, psychiatrists, psychologists, and optometrists all fit the bill.
  2. Copays on Doctor Visits or Prescription Medication. The amount you pay out-of-pocket for copays is deductible; however, the portion that your insurance covers is not.
  3. Dental Treatment. Any dental work for prevention, diagnosis, or correction of oral issues is deductible, from cleanings, to x-rays, to fillings. However, cosmetic procedures, such as teeth whitening, aren’t eligible.
  4. Medical Equipment. If you need to buy devices such as blood sugar meters, or equipment such as a cane or wheelchair, you can include these expenses on your Schedule A as long as you have a justifiable medical need for the item.
  5. Eyeglasses, Contact Lenses, and Supplies. Your out-of-pocket costs for your glasses and contact lenses are deductible as long as you are using them to correct a vision problem. You can even deduct the cost of supplies for maintaining your glasses and contacts, including saline solution, enzyme cleaner, and cases. Eye exams are also deductible.
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