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Medical Deductions

Medical Deductions. Robert M. Baldwin CPA, PFS, AEP. Prepared by Katie M. Stradling. Brief Overview. Prescription Medical insurance premiums paid Long-Term care expenses Medical Miles Lodging Doctors, Dentists Hospitals Lab Fees Eyeglasses and contracts. Deduction.

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Medical Deductions

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  1. Medical Deductions Robert M. Baldwin CPA, PFS, AEP Prepared by Katie M. Stradling

  2. Brief Overview • Prescription • Medical insurance premiums paid • Long-Term care expenses • Medical Miles • Lodging • Doctors, Dentists • Hospitals • Lab Fees • Eyeglasses and contracts

  3. Deduction • A deduction is allowed only for expenses paid for the prevention or alleviation of a physical or mental defect or illness. • Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body.

  4. Deductions continued • You can only include the medical expenses you paid during the year, regardless of when the services were provided. Your total medical expenses for the year must be reduced by any reimbursement. It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

  5. Non-Deductible • You may not deduct funeral or burial expenses, health club dues, over–the–counter medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery.

  6. Qualified Medical Expenses • Medical Professionals • Even specialists • Medical Facilities • Medical Procedures • Prescriptions

  7. Insurance • Calculate health insurance and long-term-care insurance costs not reimbursed or paid by an employer. Include Medicare deductions from Social Security benefits. There are dollar limits on long-term-care insurance premiums.

  8. Health Savings Accounts • You cannot include in medical expenses any payment or distribution for medical expenses out of a health savings account. • Contributions to health savings accounts are deducted separately.

  9. Cafeteria Plan • Also known as Section 125 Plans or "Flexible Spending Accounts," cafeteria plans allow employees to redirect compensation to pay for qualified unreimbursed medical expenses before personal taxes are computed on their paychecks. So, employees pay less taxes because their taxable income is lower. • If you have this however you cannot not itemize the expenses that were paid through the cafeteria plan.

  10. Special Purchases • Include costs of • Air conditioners • Humidifiers • Heaters • Special beds • Mattresses • Special telephones • Other medically required equipment • Medical aids • A wig purchased because of hair lost during chemotherapy • if you obtained any of it for the purpose of medically helping an ill person

  11. Home Improvements • Add up medically needed home improvements. Only the cost that is more than the increase in fair market value to your home is a valid medical expense.

  12. Education • Includes the cost of special education relating to the chronic disease of yourself, your spouse, or your dependent (if the costs are primarily for and essential to the medical care). • However, you may not deduct the costs for meals and lodging while attending the educational program.

  13. Transportation • You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance can be deducted. • If you use your car for medical transportation, you can deduct actual out–of–pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees. •  If you do not want to use your actual expenses, for 2008 you can use the standard medical mileage rate of 19 cents a mile from January 1 to June 30. Use a rate of 27 cents a mile for miles driven from July 1 to December 31. For 2009, the standard mileage rate for the cost of operating your car for medical reasons is 24 cents per mile.

  14. Meals • You can include in medical expenses the cost of meals at a hospital or similar institution if a principal reason for being there is to get medical care. • You cannot include in medical expenses the cost of meals that are not part of inpatient care. (i.e. No McDonalds)

  15. Lodging • You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to receive medical care. • You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. You can include the cost of such lodging while away from home if all of the following requirements are met. • The lodging is primarily for and essential to medical care. • The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. • The lodging is not lavish or extravagant under the circumstances. • There is no significant element of personal pleasure, recreation, or vacation in the travel away from home.

  16. Lodging continued • The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. You can include lodging for a person traveling with the person receiving the medical care. For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Meals are not included. • Do not include the cost of lodging while away from home for medical treatment if that treatment is not received from a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital or if that lodging is not primarily for or essential to the medical care received.

  17. Standard Deductions

  18. Limitation Calculation • Total all medical expenses • Subtract insurance payments • Subtract (7.5% x AGI - adjusted gross income)

  19. Example • Wages of $100,000 • Interest Income of $10,000 • Ira deduction of $5,000 • Medical expenses: • Insurance expense $10,000 • Parking fees $1,000 • Lab fees $30,000

  20. Example Calculated • AGI = $105,000 • Medical Expenses = $41,000 • 7.5% x 105,000 = $7,875 • Total Medical Deductions 41,000 – 7,875 = $33,125

  21. List of Financial Help and Insurance Issues • http://www.acor.org/ped-onc/cfissues/financehelp/finhelp.html • http://www.baldwincpa.com • http://www.baldwintax.typepad.com • http://www.feedthepig.org • http://www.360degreefinancialliteracy.org • http://www.aicpa.org

  22. Childcare • My husband and I both work. As a result of our child's cancer, we plan to hire someone to care for her in our home. Can we include this cost as a medical expense? • Yes, you can include as medical expenses wages and other amounts you pay to someone for services such as giving medications, changing dressings, bathing, and grooming. They need not be performed by a nurse as long as they are services generally performed by nurses. If you hire someone who also performs personal and household services, these amounts cannot be included among your medical expenses unless your child's condition qualifies as requiring long-term care services.

  23. Reduction of Medical Expenses • Last year we did not deduct any medical expenses because they were less than 7.5% of our adjusted gross income. This year we will be deducting our medical expenses. We also received reimbursement of some of last year's expenses. Do we have to reduce our medical expenses by this reimbursement? • No, you do not reduce your current-year medical expenses for reimbursements you received in the current year if you did not deduct the medical expenses in the year you paid them.

  24. Special School • My child suffers from a learning disability as a result of his cancer. Can we include the cost of sending him to a special school as a medical expense? • Yes, you can include tuition and other fees you pay to a special school. If you hire a tutor for your child, you can include these fees as well. In both instances, however, the expenses must result from your doctor's recommendation.

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