Can You Deduct Out of Pocket Medical Expenses on Taxes?
In the United States, healthcare costs can be a significant financial burden for many individuals and families. The good news is that the IRS allows taxpayers to deduct certain out-of-pocket medical expenses that exceed a specific percentage of their adjusted gross income (AGI). This article will explore the criteria for deducting out-of-pocket medical expenses on taxes and provide valuable insights for taxpayers seeking to maximize their deductions.
Understanding Deductible Medical Expenses
To be eligible for a deduction, out-of-pocket medical expenses must meet certain criteria. These expenses include costs for medical care paid for you, your spouse, and your dependents. Deductible expenses typically include:
1. Doctor visits and consultations
2. Prescription medications
3. Hospital stays and surgeries
4. Dental care
5. Vision care, such as glasses or contact lenses
6. Over-the-counter medications, but only if prescribed by a doctor
7. Mileage for medical appointments
8. Medical insurance premiums for individuals who are self-employed or do not have access to employer-provided coverage
Calculating the Deduction
To calculate the deduction, you must first determine the total amount of your out-of-pocket medical expenses. This amount includes all eligible expenses paid during the tax year. Next, you’ll need to calculate your AGI, which is your total income minus certain adjustments.
Once you have both figures, you can determine if you are eligible for the deduction. If your out-of-pocket medical expenses exceed 7.5% of your AGI, you can deduct the excess amount on your taxes. For example, if your AGI is $50,000 and your out-of-pocket medical expenses are $6,000, you can deduct $1,000 ($6,000 – $5,000).
Documentation and Record Keeping
To claim the deduction, you must provide documentation for all eligible expenses. This includes receipts, bills, and other proof of payment. It’s essential to keep these records organized and readily available, as the IRS may request them during an audit.
Special Considerations for Tax Year 2020 and Beyond
In response to the COVID-19 pandemic, the IRS temporarily increased the threshold for deducting out-of-pocket medical expenses to 7.5% of AGI for tax years 2020 and 2021. This change was intended to provide relief for taxpayers burdened by increased healthcare costs during the pandemic. However, the threshold is set to revert to 10% for tax years 2022 and beyond.
Seeking Professional Advice
Navigating the complexities of tax deductions can be challenging. It’s advisable to consult with a tax professional or certified public accountant (CPA) to ensure you’re taking full advantage of all available deductions, including out-of-pocket medical expenses. They can provide personalized advice and help you prepare your tax return accurately.
In conclusion, if you have out-of-pocket medical expenses that exceed the threshold percentage of your AGI, you can deduct them on your taxes. By understanding the criteria for deductible expenses, calculating the deduction, and maintaining proper documentation, you can maximize your tax savings and reduce the financial burden of healthcare costs.
