NFIB

Tax-Deductible Medical Expenses a Helping Hand in Hard Times
03/ 12/ 2003

Reprinted courtesy of the California Society of Enrolled Agents

When catastrophic illness affects you, your spouse or a dependent, there are many worrisome concerns to think about, including the costs of medical treatment and prescriptions, paying the bills, and sometimes making special arrangements for in-home care. Uncle Sam can help with tax deductions that cover a surprising number of expenses associated with medical costs.

"Most people don't realize how much of their medical expenses can actually be deductible," says Jim Southward, EA, President of the California Society of Enrolled Agents. "This is one of those 'tricky' parts of the tax Code, and obtaining professional advice may save you a lot of money."

Deductions can be claimed for certain medical expenses that are not reimbursed by insurance, including expenses for the diagnosis, cure, mitigation, treatment or prevention of disease. Some of the covered expenses may surprise you.

"Admission and transportation to a medical conference, for example, could qualify as a deduction if the costs are primarily for the patient's essential medical care," Southward says. "Also, home improvement expenses can be deducted if the main purpose is medical and the actual cost of the improvements exceeds the increase in the fair market value of your home."

Such improvements may include the addition of a swimming pool, sauna, or wheelchair ramps, widening doorways and stairways, and modifying bathrooms. "In any case," adds Southward, "make certain to obtain a written statement from your doctor explaining the medical need. You'll also need to include an appraisal of your home verifying any resulting increase in fair market value."

There are stipulations to deductible expenses, however. Expenses merely beneficial for general health, such as cosmetic surgery for appearance purposes only, health club memberships or other general health-improvement programs, and over-the-counter medicines and vitamins do not qualify. You must also itemize deductions and reduce claimed medical expenses by the amount of insurance reimbursements actually received in that year. Perhaps most dauntingly, to be deductible your total claimed medical expenses must exceed 7.5% of your adjusted gross income (AGI). You may find it advantageous to lower your AGI or "bunch" medical deductions to diminish the effect of the 7.5% limit. See your tax professional for more details.

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Enrolled Agents are tax professionals licensed by the federal government to represent taxpayers and assist them with tax planning and tax return preparation. Taxpayers in California can locate an Enrolled Agent in their area by calling toll-free 800/TAXPRO-5 or online at www.csea.org. Outside California, the Enrolled Agent referral number is 800.424.4339.

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