For many people, claiming an itemized deduction on Schedule A of their 1040 for out-of -pocket medical expenses is the sum total of their efforts to find a tax break for the high cost of health care. The trouble is that under the current tax code, many people qualify for fairly small deductions, and some qualify for none because their yearly healthcare expenditure falls below the threshold--currently set at 7.5 percent of adjusted gross income (AGI). There may be other tax strategies that could decrease your tax liabilities. Here are a few ideas to consider. As always, be sure to check with your tax professional, to determine the most beneficial course of action for you.
- Concentrate expenditures in alternate years
If you have some flexibility about certain expenses (for example: elective surgery, expensive dental procedures, etc.) you might plan to incur these expenses during a single tax year in order to exceed the AGI threshold and qualify for a tax break for that year. The next year, your expenses will be much lower and may not make the 7.5 percent of AGI to qualify for a tax break, but you will have snagged a nice tax break in the prior year - rather than no tax break in either year - which probably would be the case if your expenses had been spread evenly over the two-year period.
- Make Sure You Claim Appropriate Deductions If You Are Self-Employed
In most cases, self-employed people who pay their own medical and dental insurance premiums are allowed to deduct these costs "above-the-line" on Form 1040, which means there is no need to itemize to qualify for an above-the-line deduction.
- Consider Opening A Health Savings Account
For the self-employed who pay their own medical insurance premiums, a high deductible health policy can provide the means to cover uninsured medical expenses with tax-free withdrawals from a Health Savings Account (HSA). You make annual tax-deductible contributions to the savings account, and use the tax-free dollars to pay medical bills, avoiding the restrictive AGI threshold measures that apply to itemized deductions. HSAs are not a good tax strategy for everyone - especially people who have poor health. Discuss your best options with your professional
- Deduct Expenses You Pay for A Dependent Parent
If you pay a dependent parentís medical expenses, you are probably eligible to add these costs to your own list of itemized deductions. To qualify as your dependent, over half of the parentís support for the year must come from you. The same criteria apply to any dependent grandparents you may have, too. If you pay for your dependent parent, or grandparent, to live in a continuing care facility, you may also be able to write-off some of the costs associated with their residency.
Health care costs continue to spiral. It pays to make sure that you donít sell yourself short when it comes to leveraging all possible tax breaks.