IRS rules allow taxpayers to deduct medical expenses that exceed 7.5 percent of a taxpayer's adjusted gross income (generally wages plus other income, such as interest and dividends). Although deductions for medical expenses are not an automatic red flag for an IRS audit, the government is auditing more returns. This means taxpayers should carefully document their expenses.
According to a CNN report in 2008, the IRS has increased the number of returns it audits.
Although itemized deductions, such as for medical expenses, do not automatically trigger an IRS audit, the more deductions you claim, the greater your chances of being audited.
If you claim a deduction for medical or dental expenses, keep detailed records to document those expenses. Be sure to save all receipts, not just canceled checks.
IRS Publication 502 covers deductions for medical and dental expenses. It outlines what expenses taxpayers can deduct on their tax returns.
If you receive notice of an audit, take it seriously but do not panic. Many audits do not even require a face-to-face meeting, but only request additional information. Remember, keep records of all medical and dental expenses if the IRS questions these.
Be sure to keep the names and contact information for any physicians who treated you. Contact their offices if you need documentation of services or treatments you received during the year.