Introduction to deducting medical expenses
for taxes
sponsored by the
Stepnowski Law Offices
Throughout the year, and before April 15
rolls around, you should keep track of your
medical and special education expenses as you
go along . While this page is geared to
those with children with neurological
impairments, it does provide an overall
description of the general tax treatment. Did
you know that treatment of neurological
impairments (that your health insurer did not
pay because they were "educational") can be
tax-deductible medical expenses?
Your situation may differ, and if you have
any questions, consult a tax professional
with print-outs of the links below since he or
she may not be familiar with everything a
family with large medical needs has to go
through.
Meeting the threshold and how it affects tax
savings
Unfortunately, the Federal government
severely restricts the medical deduction to
the amount exceeding 7.5% of your
income. Thus, deducting works only for
those who itemize deductions. (Most people
with a mortgage should itemize since the
interest, real estate tax and state income tax
deductions carry you above the "Standard
Deduction" threshold.) The key here is
meeting both thresholds--until your medical
expenses exceed 7.5% of your adjusted gross
income, you cannot include any medical
expenses in your deductions.
- Example 1: a family with an income of
$50,000 and therapy bills of $12,000 (plus
the rest of the family's medical,
conference, orthodonia, eyeglasses and other
expenses of $2,000) for a total medical
expense of $14,000. Since 7.5% of
$50,000 is $3,750, the family can
include $11,250 more deductions. At a
tax rate of 15%, the tax savings are
$1,687.50.
- Example 2: same family with $100,000
income. 7.5% of $100,000 is
$7,500. The family can include $6,500
more deductions. At a tax rate of 28%, the
tax savings are $1,820.
|
|
|
new
|
new
|
|
Example
1 |
Example
2 |
Ex.1-(2013)
|
Ex.2-(2013)
|
| Income |
$50,000 |
$100,000 |
$50,000 |
$100,000 |
@ 7.5 %, threshold
|
3,750 |
7,500 |
5,000
|
10,000
|
| Total Medical Expenses |
$14,000 |
$14,000 |
$14,000
|
$14,000
|
| increased amount to
deductions |
+ 11,250 |
+ 6,500 |
+$9,000
|
+$4,000
|
| tax rate |
15% |
28% |
15%
|
28%
|
| your tax savings |
$1,687.50 |
$1,820.00 |
$1,350.00
|
$1,120.00
|
Note for 2013: the Obama tax law
increased taxes on families with members with
medical needs. (You read that
correctly.) For expenses incurred after
January 1, 2013, families will not be able to
deduct as much on their taxes. The new
columns on the right (2013) show that the
amount of tax savings will be reduced compared
to the the columns on the left (2012), by
several hundred dollars.
Because the Internal Revenue Code
severely limits the deductions of
medical bills, especially in 2013, you may
want to pay these expenses through a Health
Savings Account (HSA). This type of plan
may be offered by your employer when paired
with a high deductible policy. The
advantage is that the expenses are paid at
pretax income. The details
are in IRS publication 969, but contact your
employer's human resource department to see if
this plan is offered.
Do not rely on this article as advice.
Other exclusions may apply, such as
Alternate Minimum Tax and upper income
restrictions.
What can be deducted
Medical expenses
are the costs of diagnosis, cure, mitigation,
treatment, or prevention of disease, and the
costs for treatments affecting any part or
function of the body. They include the costs
of equipment, supplies, and diagnostic devices
needed for these purposes. They also include
dental expenses.
Medical care
expenses must be primarily to alleviate or
prevent a physical or mental defect or
illness. They do not include expenses that are
merely beneficial to general health, such as
vitamins or a vacation.
The details are discussed in the next pages.
New:
IRS
issues guidance on deducting personal care
items as medical expenses
The IRS deems "medical care" expenses as the
amounts paid for the diagnosis,
cure, mitigation, treatment, or prevention of
disease, or for the purpose of affecting a
structure or function of the body. Medical
care expenses are limited
to expenses paid primarily for the prevention
or alleviation of a physical
or mental defect or illness.
An expense which is merely
beneficial to general health is a personal
expense and not deductible. A question
often arises when an item can be both. The IRS will look to these
factors to determine whether a dual-purpose
item (i.e., one that could be used for
personal as well as medical reasons) is
primarily for medical care, including:
- the motivation or purpose for making the
expenditure,
- whether a physician has recommended the
item to treat or mitigate a diagnosed
medical condition,
- linkage between the treatment and the
condition,
- proximity in time to the condition’s onset
or recurrence,
- and most importantly, the expense would
not have been paid "but for" the disease or
illness.
See the OTC letter.
Conferences
may also be deducted if they qualify.
Dietary items and other
personal items.
Other Tax Credits are available
Because of your child's disability, you may
qualify for other credits, including
- Illinois education credits
- Dependent Care Credits
- Earned Income Credits
For more information about tax credits, see
the next page by click ing link below.
To see the detail of the laws and
regulations, click here:
Relevant IRS
Revenue Rulings and publications.
- "Medical expenses;
tuition or tutoring fees. If
recommended by the doctor, amounts
paid for the child's tutoring by a
teacher specially trained and
qualified to deal with severe learning
disabilities may also be deducted. "
- Therapy and
patterning exercises
- Legal fees.
In the
next article, we discuss tax credits.
IRS Circular
230 Disclosure: United States Treasury
Regulations provide that a taxpayer may
rely only on formal written advice meeting
specific requirements to avoid federal tax
penalties. Any tax advice in the text of
this page, does not meet those
requirements and, accordingly, is not
intended or written to be used, and cannot
be used, by any recipient to avoid any
penalties that may be imposed upon such
recipient by the Internal Revenue Service.
Back to the
Stepnowski Law Library
Home
Contact Us:
1515 N. Harlem
Ave., suite 205
Oak Park, Illinois 60302
telephone: (708) 848-3663, 848-3662
fax: (708) 848-0219
email
Edward Stepnowski
email
Frank Stepnowski
Nothing on
this page creates an attorney-client
relationship.
|
