During tax season in 2009, Bob, a longtime client, showed up at my office with receipts and organizer in hand. â€śYou donâ€™t have much in the way of medical expenses,â€ť I told him as I perused his itemized deduction worksheet.
â€śNah, just some co-pays,â€ť he replied.
Surprised by his reaction, I looked up from his organizer; Bob is deaf as a stone and has been for years. Thatâ€™s when I noticed a hearing aid in each ear. â€śYou just get those?â€ť I asked.
â€śI got them last year.â€ť
â€śDid Medicare cover them?â€ť
â€śNope, I paid for them out of my own pocket. I got top of the line too. These suckers cost me $7,000.â€ť
â€śAnd you got them in 2009?â€ť He nodded. â€śAnd what, you donâ€™t want to write them off?â€ť
His jaw dropped. â€śI can write them off?â€ť
â€śYeah, itâ€™s a valid deductible medical expense. Good thing I noticed because I just saved you $2,500 in taxes.â€ť
Bobâ€™s not alone, lots of folks have misconceptions about what can be written off as medical expenses.
First of all, one must be able to itemize deductions in order to take the medical expense deduction. The IRS grants taxpayers two options: standard deductions or itemized deductions.
Standard deductions are generally taken by renters and lower-income individuals while itemized deductions are generally available to homeowners and higher-income individuals. Either the standard deduction or the total of itemized deductions (reported on Schedule A) is subtracted from your gross income. Income tax liability is calculated on the remainder, so the more itemized deductions you can list, the more you will save in taxes.
Keep in mind: You generally have to have an awful lot of medical expenses in order to take the deduction. The IRS requires that you subtract 7.5% of your adjusted gross income from the total of your medical expenses. You deduct the remainder. So if you made $100,000 last year, you can write off the amount above $7,500 in medical expenses. You might not have enough medical bills to enjoy the write-off.
Hereâ€™s a little creative tip: stack your medical expenses into one year. For example, if you had a surgery this year and also need a root canal and new glasses, donâ€™t wait until next year to have that work done, do it now so you can maximize the tax benefit. You cannot pay for them now and take the deduction unless you actually undergo the treatment or procedure.
A complete list of deductible medical expenses is available in Publication 502. Most people track medical insurance, doctor visits, prescriptions, eye and dental care.
You may be surprised to find the following are deductible medical expenses:
- Capital improvements to your home or vehicle to accommodate a disability
- Transportation and lodging in another city if the primary purpose is medical care
- Medicare premiums deducted from your Social Security check
- Chiropractor, acupuncture, therapeutic massage
- Alcohol and drug addiction for inpatient treatment at a therapeutic center, including meals and lodging
- Dentures, birth control pills, and pregnancy test kits, fertility enhancement
- Cost of buying, training, and maintaining a guide dog or other service animal when required to assist you or your dependent with physical disabilities
- Unused sick leave to pay for your health insurance premiums
- Cost of medical conferences and transportation to same if the topic concerns the chronic illness of yourself, your spouse or your dependent
- Adapters to TV sets and telephones for the hearing-impaired
- Braille instruction, Braille books and magazines
- Health, dental and eye insurance, long term care insurance, HMO fees, disability insurance withheld from your paycheck
- Lead-based paint removal in your home
- Cost of weight loss clinic if prescribed by a doctor for treatment of obesity or hypertension
- Cost of medical care, lodging and meals in a nursing home if there for medical reasons
- Medical mileage â€“ trips to see practitioners, pharmacy, etc
- Cosmetic surgery for breast reconstruction after a mastectomy for cancer or to correct a birth defect or other condition that interferes with oneâ€™s health
Generally, cosmetic surgery is not deductible. However, a stripper won a court case several years ago and was allowed a deduction for breast enhancement--but it was not allowed as a medical expense-- she was able to write it off as an â€śordinary and necessaryâ€ť business expense.
Also not deductible are vitamins and supplements, gym membership, dance lessons and swimming lessons even if recommended by your physician, prescriptions for controlled substances (marijuana, laetrile, etc. that violate federal law) or prescription medicines from foreign countries, hair transplants and teeth whitening.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, â€śTaxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know,â€ť available at all major booksellers. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.