Medical Expenses a Commonly Missed Deduction
Medical Expenses a Commonly Missed Deduction
This is one of the more commonly missed deductions. It is usually missed because of the fact that most people are never ready for it!
First of all, this is not the kind of deduction you want at all. Please accept my condolences if you have this deduction, because it is obviously due to an illness or injury of either yourself or a dependant.
The deduction is missed or not taken properly because it is not an expense that we incur consistently. Mortgage interest, property tax, .etc… are all “year in and year out” deductions for most people. But when you have the medical deduction because of perhaps something not covered (such as major medical services not covered by our health insurance or a high deductible), people are not used to taking the deduction at all.
Everyone incurs these deductible expenses all the time in the form of co-pays and prescriptions, but there is usually never enough to exceed the 7.5% floor. In other words if your AGI is $100k, you would need $7,500 in deductible medical expenses in order to start getting some “real” tax savings. $50k in AGI and you would need to have $3,750. ($50k X .075 = $3,750)
More often than not, your income is less when you have this deduction and therefore reduces the floor. For example, if your income is usually $100k you will then need $7,500 in medical expenses. But the injury or illness may cause you to miss some work and reduce your income, thus reaching the floor more quickly. If the income is $50k, then the floor is $3,750 and you then need all the deductions you can get.
Usually the basic “year to year” medical expenses do not add up to the floor and this why people miss the deduction when they really need it most!
Remember that expenses covered by insurance are not deductible, but the co-pays and deductibles are.
This is a direct link to the IRS web page where you can view all the things that are deductible under this medical deduction. There are about SEVENTY FIVE of them. http://www.irs.gov/publications/p502/index.html
Now, let’s get into the tax planning. I believe the best way to understand taxes better is from a tax planning perspective. (Just like investing, staying on top of the situation and being proactive as apposed re-active.) The tax code is a MILLION pages of double talk, but the planning can be a lot more general and easier to remember.
If you know that you are going to have one of these major deductions or you have a dependent that will affect your return with these expenses that will put you closer or over the floor, then try to consolidate as many medical expenses in that year as possible.
We have all heard of athletes that have postponed surgery for a knee, arm, or shoulder until the season is over. Another example: Dental surgery can be postponed and this sometimes requires a lot of out of pocket expenses.
Let say you have an income of $50k a year and your child needs some major dental work and it will cost $4k. You may want to consider taking care of all of the other major medical expenses that you can in that year because you are already over the floor and everything will be deductible like any other itemized deduction. Eye glasses, tests etc...Refer to the list that I have included above.
Please do not interpret this as any type medical advice. This will not always work out because sometimes we need care immediately.
But there are definitely instances where you can load up these expenses to reduce your tax bill significantly and so it is good to be aware of this strategy.
As a last note, be aware that medical expenses are an “add back” for the AMT (Alternative Minimum Tax) and that there is no substitute for a tax projection.
Sincerely,
Bob O’Brien
Medical Expenses a Commonly Missed Deduction - To learn more about this author, visit Bob O'Brien's Website.
Like this article? Share it with your friends
Unfortunately, we all incur medical expenses from time to time and you really need to make certain that you understand this deduction. It’s important that you have a general idea as to how it works and make a mental note of the money saving strategy in case you incur these expenses.
This is one of the more commonly missed deductions. It is usually missed because of the fact that most people are never ready for it!
First of all, this is not the kind of deduction you want at all. Please accept my condolences if you have this deduction, because it is obviously due to an illness or injury of either yourself or a dependant.
The deduction is missed or not taken properly because it is not an expense that we incur consistently. Mortgage interest, property tax, .etc… are all “year in and year out” deductions for most people. But when you have the medical deduction because of perhaps something not covered (such as major medical services not covered by our health insurance or a high deductible), people are not used to taking the deduction at all.
Everyone incurs these deductible expenses all the time in the form of co-pays and prescriptions, but there is usually never enough to exceed the 7.5% floor. In other words if your AGI is $100k, you would need $7,500 in deductible medical expenses in order to start getting some “real” tax savings. $50k in AGI and you would need to have $3,750. ($50k X .075 = $3,750)
More often than not, your income is less when you have this deduction and therefore reduces the floor. For example, if your income is usually $100k you will then need $7,500 in medical expenses. But the injury or illness may cause you to miss some work and reduce your income, thus reaching the floor more quickly. If the income is $50k, then the floor is $3,750 and you then need all the deductions you can get.
Usually the basic “year to year” medical expenses do not add up to the floor and this why people miss the deduction when they really need it most!
Remember that expenses covered by insurance are not deductible, but the co-pays and deductibles are.
This is a direct link to the IRS web page where you can view all the things that are deductible under this medical deduction. There are about SEVENTY FIVE of them. http://www.irs.gov/publications/p502/index.html
Now, let’s get into the tax planning. I believe the best way to understand taxes better is from a tax planning perspective. (Just like investing, staying on top of the situation and being proactive as apposed re-active.) The tax code is a MILLION pages of double talk, but the planning can be a lot more general and easier to remember.
If you know that you are going to have one of these major deductions or you have a dependent that will affect your return with these expenses that will put you closer or over the floor, then try to consolidate as many medical expenses in that year as possible.
We have all heard of athletes that have postponed surgery for a knee, arm, or shoulder until the season is over. Another example: Dental surgery can be postponed and this sometimes requires a lot of out of pocket expenses.
Let say you have an income of $50k a year and your child needs some major dental work and it will cost $4k. You may want to consider taking care of all of the other major medical expenses that you can in that year because you are already over the floor and everything will be deductible like any other itemized deduction. Eye glasses, tests etc...Refer to the list that I have included above.
Please do not interpret this as any type medical advice. This will not always work out because sometimes we need care immediately.
But there are definitely instances where you can load up these expenses to reduce your tax bill significantly and so it is good to be aware of this strategy.
As a last note, be aware that medical expenses are an “add back” for the AMT (Alternative Minimum Tax) and that there is no substitute for a tax projection.
Sincerely,
Bob O’Brien
Medical Expenses a Commonly Missed Deduction - To learn more about this author, visit Bob O'Brien's Website.
Like this article? Share it with your friends
 | |
 |
No article feedback found. |
| |
Leave Your Feedback |
 | |
| |||
|
To learn more about the Evan Elite Author Program please contact us. |
 | |
|  |
Subscribe to Bob's articles
 | |
|
|  |
 | |
|
| |
 | |||||||
|
Referred by: http://www.mywealth.com
 | ||
 |
||
 |
||
 |
||
|
| ||
 |
| Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details. |
|
|
 |
| Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media |
|
|
 |
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"
Click Here To Learn More |
|
|
|
|
Get advice & tips from famous business owners, new articles by entrepreneur experts, my latest website updates, & special sneak peaks at what's to come!
|
|
|
 Quick Start Guide Instant Yellow Pages Networking Impacts Income Online Marketing Tools Networking Royally |
|
 | ||
 |
Top 50 Marketing Blogs
Top Blogs To Watch In 2008 | |
 |
Top 50 SEO Posts - 2007
Top SEO Posts of the Year | |
| ||
 | ||||
| ||||
|
| ||||
| ||||
|
|
|
|
|
||||||||||||
|
Email us your ideas on how to make our website more valuable! Thank you Sharon from Toronto Salsa Lessons / Classes for your suggestions to make the newsletter look like the website and profile younger entrepreneurs like Jennifer Lopez and Sean Combs!
|
|
|
| ||||||||||||
| ||||||||||||
|
|
||||||||||||