This is the time of year when many of us begin the frantic search for tax deductions. While most of the deductions allowed were set in stone on Dec. 31, 2010, there might still be some gems to uncover in your 2010 costs. One of them could be found in your medical expenses.
As an overview, medical expenses are deductible to the extent they exceed 7.5 percent of your adjusted gross income. If your AGI (Line 38 of Form 1040) is $100,000 and you have medical expenses totaling $10,000, your deduction on Schedule A would be $2,500, or $10,000 - (7.5 percent of $100,000).
One item that can be included in medical expenses is health insurance costs. If you are self-employed and are not covered under your spouse’s employer-sponsored group plan, the premiums you pay are deductible on Form 1040 rather than Schedule A. Additionally, contributions to Medical Savings Accounts and Health Savings Accounts are deductible on Form 1040 and not Schedule A. The remainder of this article assumes that you are not eligible for the self-employed health insurance deduction.
Assuming you do not qualify for a self-employed health insurance deduction, insurance premiums you pay for health coverage are deductible as medical expenses.
Payments for long-term care insurance can also be included as medical expenses. There is, however, a limitation on the deductible amount based on your age at the close of the taxable year. For 2010, the deduction ranges from $330 for those under age 40 to $4,110 for those older than 71.
Out-Of-Pocket Medical Costs
Out-of-pocket medical costs include:
- Unreimbursed doctors’ fees, including co-pays and other amounts paid to a physician’s office
- Unreimbursed dental fees
- Unreimbursed expenses paid to hospitals for hospital stays, including emergency room visits
- Unreimbursed medical transportation costs, including ambulance, and 16.5 cents per mile for using your car for medical visits
- Prescription drugs and medicines
- Medical equipment
- Other medical costs
Let’s look at a little more detail on a few of the above items:
With respect to medically necessary procedures by physicians and dentists, those expenditures are deductible. However, cosmetic procedures that are not designed to ameliorate deformities (from congenital birth defects or other injuries or diseases) are not deductible. For example, let’s say you have surgery on your nose. If the surgery was done because you were in an accident and it is reconstructive in nature, the cost is deductible; however, surgery to change your nose size or shape to improve your appearance is likely not. Similarly, the cost of whitening teeth is not deductible as a medical expense.
What is included in medical transportation costs? Payments for an ambulance or similar transportation services are deductible. Likewise, costs for driving you or a loved one to the emergency room or a doctor’s visit are deductible. But what about out-of-town transportation? The general answer is that any transportation costs incurred for medical purposes are deductible. Thus, the cost of traveling to another town, whether by air or car, to see a specialist is deductible. Not only the travel cost, but lodging in connection with treatment at a hospital or other qualified medical facility is deductible, though lodging costs are limited to $50 a day per person.
Here is an example of medical travel. Your son requires a bone marrow transplant and the local medical facilities do not have qualified personnel to perform the procedure. Both parents and the child travel to the city where the transplant will be performed. The cost for plane tickets is $550 each and the hotel cost while undergoing necessary work-up procedures is $110 per day. The full cost of the plane tickets will be deductible and the deduction for lodging will be $110 per day. If the nightly cost for the hotel room was $160, the deduction would be limited to $50 per day per person or $150.
Meals are not deductible.
Medical travel can also include travel to foreign countries and other tourist areas as long as the travel is essential to and primarily for medical care and not for a significant element of personal enjoyment.
Other medical costs have the potential to add up to big savings. For example, air conditioners designed to assist in allergy relief or cystic fibrosis relief might be deductible. If you or someone you know is blind, the cost of a seeing-eye dog or a portion of the costs of Braille books could be deductible. The cost of a clarinet and lessons to alleviate severe malocclusion of teeth can qualify as a medical deduction, as can health club dues in certain circumstances. Even the cost of a medicine man might be a deductible medical expense.
This discussion is not intended to be a complete list of medical deductions because those items that qualify as such could go on for pages. The above information is meant to help prod your thinking about the possibilities. Give us a call if you have some questions and let’s discuss what deductions you may be entitled to.