Don’t forget about medical expenses in calculating your income tax deductions.
Medical expenses may be deducted to the extent unreimbursed costs exceed 10 percent of your adjusted gross income — 7.5 percent if you or your spouse have reached age 65. Medical expenses that exceed those thresholds may be added to itemized deductions that include taxes, charitable contributions and other items. If the combination of your medical, taxes, charitable contributions and other itemized deductions exceeds your standard deduction, then you will prepare a Schedule A.
Qualified medical expenses often add up to much larger amounts than expected. Here are some items you should take into account in determining your tax deductions:
Health insurance premiums. Health insurance constitutes a medical expense when paid with after-tax dollars. Long-term care insurance premiums also count as medical expenses, subject to specific dollar limits based on age.
Transportation. The cost of getting to and from medical treatments is a medical expense. This includes the cost of using your own car as well as taxi fares and public transportation. Car costs can be calculated at 19 cents a mile for miles driven in 2016 — 23 cents for 2015 — plus tolls and parking. Alternatively, you can deduct your actual costs for gas and oil, but not such general costs as insurance, depreciation or maintenance.
Therapists, nurses and other health care providers. The services of individuals other than doctors can qualify as a deductible medical expense as long as the services relate to a medical condition and aren’t for general health. The cost of physical therapy after knee surgery would qualify, but not the cost of a fitness counselor to tone you up. Amounts paid for certain long-term care services required by a chronically ill individual also qualify as deductible medical expenses.
Eyeglasses, hearing aids, dental work, psychotherapy and prescription drugs. Deductible medical expenses include the cost of glasses, hearing aids, dental work, psychiatric counseling and other ongoing expenses in connection with medical needs. Purely cosmetic expenses don’t qualify. Prescription drugs, including insulin, qualify. But aspirin and vitamins don’t. Neither do amounts paid for drugs or treatments illegal under federal law — such as marijuana — even if state or local laws permit the drug or procedure.
Smoking-cessation programs. Amounts paid for smoking-cessation programs and prescribed drugs designed to alleviate nicotine withdrawal constitute deductible medical expenses. However, non-prescription nicotine gum and certain nicotine patches aren’t deductible.
Weight-loss programs. A weight-loss program qualifies as a deductible medical expense if undertaken as treatment for a disease diagnosed by a physician. The disease can be obesity itself or another disease, such as hypertension or heart disease, for which the doctor directs you to lose weight. It’s a good idea to get a written diagnosis before starting the program. Deductible expenses include fees paid to join the program and attend periodic meetings. However, the cost of low-calorie food you eat in place of your regular diet isn’t deductible.
Dependents and others. You can deduct medical expenses you pay for your dependents, such as your children. In most cases, the medical costs of a child of divorced parents can be claimed by the parent who pays them regardless of who gets the dependency exemption.
Income thresholds can pose large barriers. In some cases, your medical expenses won’t exceed the limits and therefore offer no deduction on your income tax return.
Another option for a deduction is contributions to a Health Savings Account (HSA). For eligible individuals, HSAs offer a tax-favorable way to set aside funds to meet future medical needs.
Here are some tax-related elements: Contributions you make to an HSA are deductible, within limits. Earnings on funds in the HSA aren’t taxed. Distributions from an HSA to cover qualified medical expenses aren’t taxed.
To be eligible for an HSA, you must be covered by a high-deductible health plan. For 2015 and 2016, a high- deductible health plan is a plan with an annual deductible of at least $1,300 for self-only coverage or at least $2,600 for family coverage. The limit on deductible contributions is $3,350 (2015 and 2016) for self-only coverage, and $6,650 (2015) and $6,750 (2016) for family coverage. Additionally, annual out-of-pocket expenses required to be paid — other than for premiums — for covered benefits can’t exceed $6,450 (2015) and $6,550 (2016) for self-only coverage or $12,900 (2015) and $13,100 (2016) for family coverage.
To learn more about medical deductions or HSAs and how they could offer tax savings, consult with a qualified professional to review your specific circumstances.