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A clearer look at maximizing medical tax deductions

As you get older, you end up at the doctor's office a lot more. Most of the time it's for routine things, such as a cold you just can't shake like you did when you were younger.

Other times, though, it's for more complex and costly treatments.

Me after right eye cataract surgeryI've been discovering this inevitable truth over the last few years. Today, in fact, I spent the morning at an out-patient surgery center where my ophthalmologist removed a cataract.

My doctor says I'm supposed to be resting my eyes this afternoon, both the just operated on right one as well as the now over-used left one, on which I had this same procedure last year. But I couldn't resist the opportunity to blog about the obvious connection of my lovely eye guard and medical tax deductions.

So I'll make this post on how to make the tax-saving most of your medical costs quick.

Itemize: The first thing to note about deductible medical costs is that you much itemize instead of claiming the standard deduction.

Ease is obviously a major reason why folks don't file Schedule A. No receipts to track. No extra paperwork on April 15.

But the standard deduction is also popular because over the years it has become more generous, thanks to tax law changes and annual inflation adjustments.

For 2013 taxes, the standard deduction amounts are:

  • $6,100 for single or married filing separately taxpayers,
  • $8,950 for heads of households, and
  • $12,200 for married couples filing a joint return or surviving spouses.

If you don't have enough medical and other itemized costs to claim on Schedule A to exceed the standard amount for your filing status, there's no need to worry about hanging onto doctor's or other receipts.

More than 10 percent tax requirement: You also need to know what your adjusted gross income (AGI) will be. You can't deduct medical costs on Schedule A unless they are more than 10 percent of AGI.

Take special notice of the "more than" requirement. If your AGI is $30,000 you must have IRS acceptable medical expenses of more than $3,000. And then you can only claim the amount in excess of that percentage.

That means if your AGI is our hypothetical $30,000 and you have $3,100 in medical expenses, you can only count $100 on your Schedule A.

Clearing the medical deduction hurdle: There are, however, many ways to clear the 10 percent of AGI medical deduction hurdle.

There are the easy costs, such as co-pays for prescriptions and doctor's office visits. But don't overlook other medical treatments you can add up on your Schedule A. They include:

  • Travel costs to get to and from medical treatments and even to pick up doctor's ordered medications at your local pharmacy,
  • Insurance payments from already-taxed income, including a portion of long-term care premiums,
  • Alcohol- or drug-abuse treatments,
  • Laser vision (or cataract) corrective surgery,
  • False teeth, hearing aids, crutches, wheelchairs and guide dogs for the blind or deaf, and
  • Weight loss programs that a physician deems medically necessary.

Other less common but medically necessary expenses also count. This includes, for example, your doctor telling you that you need to add a humidifier to your home's central air system to ease your child's asthma. In that case, the cost could be at least partially deductible.

Some disability related home improvements also could count, such as adding ramps and widening doors for wheelchair access.

Just don't go renovation crazy. Structural changes that qualify as deductible medical costs do so only to the extent that they don't add value to your home. When that happens, the home improvements aren't immediately deductible as medical expenses, but since they add to your home's basis they could pay off on your taxes when you sell.

And while vanity cosmetic surgery doesn't generally count, some nips and tucks needed to correct a medical condition can be deducted.

So as the year winds down, take a look at the medical costs you've incurred so far. If you need other treatments that could get you past the 10 percent of AGI requirement and make overall itemizing worthwhile, set up appointments with your doctor(s) and dentist and get the treatments by Dec. 31.

They could pay off nicely this coming (delayed) tax-filing season.

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John Matthai

Good information.

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