If you had a lot of medical expenses this past year, you may be able to deduct these expenses on your federal taxes. Here are three things you need to know about how deducing health expenses on your federal taxes work.
Your Expenses Must Exceed A Certain Percentage Of Your AGI
The first thing you need to know is that your medical cost will have to exceed a certain percentage of your adjusted gross income, or AGI. Your AGI is your total income after all applicable deductions are taken away from your income.
If you are under 65, your medical expenses must exceed 10% of your AGI before you are able to deduct them. For example, if your AGI is $50,000, your medical expenses need to exceed $5,000 before you are able to deduct them. So if you have $11,000 in medical expenses, you will be able to deduct $6,000 in medical expenses from your taxes.
If you are over 65, your medical expenses only need to exceed 7.5% of your income before you can deduct them. For example, if your AGI is $50,000, your medical expenses only need to exceed $3,750 before you can deduct them. If you had spent $11,000 in medical expenses, you would be able to take away $7,250 from your taxes.
Not All Medical Expenses Count
If any of your medical expenses were later reimbursed by your insurance company, they cannot be itemized.
Additionally, if you paid your medical expenses from your own tax-free Health Savings Account or similar tax-free account, you will not be able to claim those expenses as a deduction since taxes were already withheld from that money.
You Have To Itemize Your Deduction
If you chose to deduct your medical expenses on your federal tax forms, you cannot take the standardized deduction. Instead, you will have to take the itemized deduction instead.
That means you need to have all your other paperwork in order as well. You will need to have kept track of all the expenses you would need to itemize since you are not taking the standardized deduction, such as mortgage interest, charitable deductions, and business related expenses.
If you have not kept track of all that information, and your medical expenses do not exceed your standard deduction, it may make more sense to take the standard deduction instead of itemizing your medical expenses.
If your medical expenses exceed your standard deduction, it may be beneficial for you to itemize your deductions to save on your taxes this year. If you are unsure if this is the best option for you, talk with a company like Groskreutz, Schmidt, Abraham, Eshleman & Gerretse CPA.