Deducting Medical and Dental Expenses
No one likes to pay taxes, but each year millions of Americans sit down with all their receipts and figure out if enough taxes were deducted from their paychecks during the year to cover their tax bill. They also look for ways to get some of their money back in the form of tax returns. If you have medical expenses, they can add up to a nice deduction from your tax bill.
Health Savings Accounts
The first place to save with your health expenses is if you contributed to a health savings account during the year. A health savings account is a tax-free way to pay for your health needs. Your contributions are subtracted from your total income and any employer contributions are not even calculated as part of your income. This is the best place to save with your medical expenses, because you don't have to meet a minimum amount like you do if you itemize the deductions. This also works if the taxpayer is not itemizing deductions.
Self-Employed Health Insurance
If you are self-employed and your business made a profit, you should be eligible to deduct some or all of your health insurance costs for you and your family. The amount you can deduct is the lesser of your insurance costs or your company profit. The insurance you are using must also be set up under your business and not as an individual account. The deduction is taken from your income and will reduce your taxes before you take deductions.
Most people take their medical deductions on the Form 1040, Schedule A. Total all of your medical and dental expenses. These are the amounts you paid to "for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription, except for insulin," according to the IRS.
Include the co-pays for doctor visits and the insurance premiums you pay. Things like smoking cessation programs and weight-loss programs (if prescribed by a doctor) are also deductible. Funerals, health club dues, diet foods and over-the-counter medicines are not deductible. See the IRS instructions with Schedule A or consult your tax advisor whether other items may be deductible.
Calculating the Deduction
On your Form 1040, take your adjusted gross income (usually found on line 38) and multiply the number by 0.075. Subtract this answer from the total of your medical expenses. The difference is your medical and dental expense deduction. If you have been relatively healthy, don't be surprised if you can't take the deduction. This deduction isn't how much you will get back, it is only how much you can deduct from your income. The amount of money this deduction actually saves you is based on your tax bracket. The higher the percentage your income is taxed, the bigger the savings you will get from the deduction.
- One of the many U.S. tax forms. Wikimedia Commons.