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With only a month left until this year’s tax deadline, it's essential for taxpayers to familiarize themselves with the various deductions available to them and get those tax returns filed on time. One commonly overlooked deduction is medical expenses. Understanding the intricacies of deducting medical expenses can lead to significant tax savings for individuals and families. In this comprehensive guide, we'll delve into the details of deducting medical expenses, including qualifications, limitations, and other important considerations that every taxpayer should be aware of.

Qualifications for Deducting Medical Expenses

The Internal Revenue Service (IRS) allows taxpayers to deduct qualifying medical expenses that exceed a certain threshold. To be eligible for this deduction, the medical expenses must meet the following criteria:

• Necessity: The expenses must be primarily for the diagnosis, cure, mitigation, treatment, or prevention of disease.
• Prescribed by a Professional: The medical services or treatments must be prescribed by a licensed healthcare professional.
• Incurred by the Taxpayer, Spouse, or Dependents: The expenses can be for the taxpayer, their spouse, or their dependents, including children and other relatives who qualify as dependents under IRS rules.
• Not Reimbursed: The expenses must not be reimbursed by insurance or any other source.

Qualifying medical expenses can include a wide range of costs, such as the following:

• Doctor and dentist fees
• Hospital services
• Prescription medications
• Medical equipment and supplies
• Mental health treatments
• Long-term care services
• Transportation for medical purposes

Limitations on Deducting Medical Expenses

While the deduction for medical expenses can provide significant tax benefits, there are certain limitations and considerations to keep in mind. Overlooking these limitations and exceptions are a common reason that taxpayers claim these deductions incorrectly, leading to fines and other issues:

• Threshold: Taxpayers can only deduct medical expenses that exceed a certain threshold, which is adjusted annually. For most taxpayers, the threshold is 7.5% of their adjusted gross income (AGI). This means that only medical expenses that exceed 7.5% of their AGI can be deducted.
• Itemized Deductions: Medical expenses can only be deducted if the taxpayer itemizes their deductions on Schedule A of Form 1040. If the taxpayer chooses to take the standard deduction, they cannot deduct medical expenses.
• Non-Qualifying Expenses: Not all medical expenses are deductible. Cosmetic procedures, over-the-counter medications (unless prescribed by a doctor), and general health items like gym memberships are typically not eligible for the deduction.
• Reimbursements: If the taxpayer receives reimbursement for medical expenses from insurance or any other source, they must subtract the reimbursed amount from the total medical expenses before calculating the deduction.

Other Considerations

In addition to the qualifications and limitations mentioned above, there are a few other important considerations regarding deducting medical expenses:

• Documentation: It's crucial to keep detailed records and receipts for all medical expenses. This documentation will be necessary in case of an IRS audit or if there are any questions about the deduction.
• Coordination with Other Tax Breaks: Taxpayers should be aware of how deducting medical expenses may affect other tax breaks, such as the medical expense reimbursement account (FSA), health savings account (HSA), or the premium tax credit for health insurance purchased through the marketplace.
• Special Circumstances: There are certain special circumstances, such as disability or chronic illness, that may allow taxpayers to deduct additional expenses related to their condition. Consulting with a tax professional can help taxpayers navigate these complex situations.

Deducting medical expenses can be a valuable cost-saving opportunity for taxpayers, but it requires careful consideration of qualifications, limitations, and other important details. By understanding the rules and guidelines set forth by the IRS, taxpayers can maximize their deductions and reduce their tax liability.

Contact Demian & Company CPAs Today

If you were hit with high medical costs last year, writing off those expenses can offer some much-needed financial relief to offset a portion of those bills. However, doing so takes a high level of understanding of the tax laws surrounding this deduction—a level that most taxpayers don’t possess.

At Demian & Company CPAs, we specialize in providing expert tax advice and guidance to individuals and businesses. If you need assistance with filing your tax return or understanding how to properly deduct medical expenses, don't hesitate to contact us. Our team of experienced professionals is here to help you navigate the complexities of the tax code and ensure that you take full advantage of all available deductions. Schedule a consultation with us today and let us help you achieve your financial goals.