One of the most challenging tax deductions for our clients is medical expenses.
For medical expenses to be deductible, the total costs must exceed 7.5% of your adjusted gross income. To see if yours qualify, estimate the total from all your income sources for last year and multiply it by 7.5%. That’s your medical deduction threshold, and your eligible medical expenses beyond that amount can be deducted.
Next, estimate what you spent last year on medical and dental providers, prescriptions, and insurance. Be sure to subtract reimbursements received from health insurers. If you’ve roughly calculated that your medical expenses exceed the threshold, then you’ll need to document your transactions.
Tracking, Documenting & Reporting
For our clients whose medical expenses we’ve tracked in real-time using Quicken, we can run a report for their tax preparer.
If you’re starting from scratch, use this list of sources to gather the necessary information and document your medical expenses:
Statements & Summaries
Look through your bank and credit card statements, including year-end summaries, checkbook registers, and credit card bills to find costs of these medical expenses:
- Long-term care premiums (list individually for each spouse) – the portion that is deductible depends on your age. See the premium limits on the IRS’ website as they can change from year to year.
- Hospital, clinic, surgical center fees, etc.
- Lab and X-ray fees
- Eyeglasses, contact lenses, hearing aids, and denture expenditures
- Medical equipment and supply expenses (wheelchairs, walkers, incontinence products)
- Ambulance fees and other medical transportation costs, such as mileage, tolls, parking, taxis, and public transportation
- Lodging for medical travel
Ask providers for records and receipts for:
- Prescriptions: ask your pharmacy or look in your online account for a list of last year’s purchases.
- Doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners: ask providers for last year’s accounting of your payments.
- Expenses for qualified long-term care: ask for records of your payments from home health care agencies and payroll services, and assisted living facilities for medically related charges
Your Own Records
Gather information from your own financial records:
- Health insurance premiums (not paid pre-tax): if you did not pay from a checking account or with a credit card, look for a record of the year’s payments on your employment or pension pay stubs or on your Social Security statement. Learn more about health insurance premium deduction rules.
- Medical and dental insurance reimbursement payments: any reimbursements you’ve received, or that were paid to a provider, throughout the year will reduce the total of your deductible medical expenses. Insurance companies do not generally provide a year-end tally of reimbursements, so you need to self-report any payments. You can find them on your Explanation of Benefits statements.
- Mileage for medical purposes: look at dates of appointments and estimate miles driven to those appointments to report your mileage deduction. Consult IRS guidelines for reimbursement rates. Deductible expenses can also include tolls paid while driving to medical appointments, as well as parking fees.
- Other medical and dental expenses
It’s A Lot!
Clearly, organizing and documenting medical expenses for taxes can be a colossal task. Consider enlisting the services of a personal finance manager to help you get through tax season with your sanity intact and stay on top of tracking medical expenses in the coming year.