To Receive a Tax Break, You'll Soon Need To Pay More in Medical Expenses
Posted by: Brookside Admin
If you added up all of the money you spent on medical care for the year, how much would that be? For some, that can sound like a depressing question. Do you really want to know how much you've spent on various ailments for you and your family? Actually, you do because it could lead to a deduction on your federal taxes.
Much like deductions for charitable donations, home-related costs, or expenses for your business, both annual medical and dental costs can be added up to lower your tax liability. The first step in order to do this is to file an itemized return, rather than claiming the standard deduction. You'll want to do some calculations before going that route, however. Even if you have enough medical expenses to qualify for a deduction, without additional write-offs, it may not actually save you money.
Once you've determined if an itemized deduction is in your best interest, you can begin adding up your medical expenses. In order to qualify for a deduction, your medical costs will need to exceed 10 percent of your annual gross income.
If you haven't used the medical deduction in a few years, that number might sound a little high. It used to be 7.5 percent, but was raised to 10 percent beginning with the 2013 tax year. A loophole still exists for those over the age of 65, however. Those individuals may still qualify for the deduction by exceeding 7.5 percent of their annual gross income.
Even that loophole is closing soon, however. In fact, 2016 is the last year that anyone can use the 7.5 percent rule. For the 2017 tax year, all citizens will need their medical expenses to exceed 10 percent of their AGI in order to qualify for a tax deduction.
That could have a significant impact on many individuals. Let's do some simple math.
If the gross annual income for your household were $70,000, your medical expenses would need to exceed $7000. That may sound like an easy total to exceed given the cost of most medical procedures and prescriptions, but remember that number applies to the money that actually comes out of your pocket. Anything covered by insurance won't be able to be added into your medical costs.
Before the hike, the number to reach would have been $5250.
In order to reach the threshold, you can use expenses for medical and dental accumulated by yourself, your spouse, and any claimed dependents. That could include your costs after insurance, the cost of your insurance premiums, and even the cost of travel for medical care, like ambulance rides, mileage, tolls and parking fees. If you're cutting it close, these minor expenses could make all the difference.
One point to remember, however, is that you can't receive a tax break on the same money twice. In this case, that means if you pay your medical expenses with a Health Savings Account, or a medical Flex Spending Account, which are typically tax free to begin with, you can't also claim a deduction on your taxes.
There are a number of deductions like this that require in-depth knowledge to claim correctly and fully. If you have questions about your taxes, consult with the CPAs at Brown Kinion and Company at our offices in Broken Arrow, and South Tulsa / Bixby.