The costs of health care have risen much faster than inflation and are likely to continue with that path, given the changes implemented by the Patient Protection and Affordable Care Act. This unfortunate trend may ask you to ask yourself whether you are making an appeal to save money and reduce the impact of costly healthcare altogether.
In addition, if you were not previously covered by health insurance, you may have been obliged to purchase it with the implementation of the individual health insurance mandate in 2014. Although some income groups receive support to provide coverage, many do not and receive a fine for not buy adequate coverage.
Fortunately, you can effectively reduce your health care costs by using the range of available health care tax deductions.
How to claim health-related tax credits
Through conventional deductions on schedule A and a special tax benefit for the self-employed, you can get back a lot of the money that you have spent on health issues.
The most common and trusted method for reducing your tax liability due to medical expenses is to specify your deductions and to list medical expenses on Schedule A. You can deduct qualified healthcare costs that are higher than 10% of your adjusted gross income (AGI). Although for many this income limit is high, there are a number of expenses that you can claim that qualify to meet this.
For example, if your AGI is $ 40,000 in 2013, the 10% minimum would be $ 4000. If your medical expenses for the year are $ 5,000, you can include the $ 1,000 difference in your specified deduction for that year. If your medical expenses were less than $ 4000, you will not receive a tax benefit.
Expenses covered by your employer or insurance company do not count, and you cannot “double-dip” your tax benefit by requesting a deduction for everything for which you have paid from your Health Savings account (HSA) or flexible expense account (FSA).
However, if you pay from your own pocket, you can include all eligible healthcare costs that you have paid for yourself, along with everything that you have paid for your spouse or surviving relatives. The key is to know all the possible costs that can help you reach that 10% threshold. Start with these five and talk to your accountant about more options.
Health expenses that you can withhold
The complete list of issues that you can include is very long and you can view each item on the IRS website. The five best ways to meet the 10% threshold are:
- Doctor visits. Payments to a medical professional are deductible, and your primary doctor is not the only one whose costs can be applied. Costs of nurse practitioners, chiropractors, osteopaths, Christian Science practitioners, psychiatrists, psychologists and optometrists all met.
- Copays on doctor visits or prescription drugs. The amount that you pay in cash for copays is deductible; however, the part that your insurance covers is not.
- Dental treatment. Any dental work for the prevention, diagnosis or correction of oral problems is deductible, from cleansing to X-rays, to fillings. However, cosmetic procedures, such as teeth whitening, are not eligible.
- Medical equipment. If you need to purchase equipment such as blood sugar meters or equipment such as a walking stick or wheelchair, you can include these expenses in Schedule A, provided you have a justified medical need for the item.
- Glasses, contact lenses and supplies. Your cash costs for your glasses and contact lenses are deductible as long as you use them to correct a vision problem. You can even deduct the costs of consumables for the maintenance of your glasses and contact lenses, including physiological saline, enzyme cleaner and suitcases. Eye exams are also deductible.
Can I deduct health insurance premiums?
You can often deduct health insurance premiums, but it is not a simple, clear rule. You may deduct your premiums for some plans, but you may incur some restrictions. You cannot deduct anything that already gives you a tax refund, and if you pay your medical premiums with tax before tax, you cannot include the costs in your deduction.
However, you will find numerous premiums that you can deduct, including the following:
- Insurance premiums. If you pay for your individual health insurance policy from your own pocket without other tax exemption, you can deduct these costs. However, if you are part of a group policy through your workplace and you pay the premium with pre-tax money, you have already received your tax benefit – you cannot deduct the same costs twice. In addition, if you participate in an insurance plan that covers medical problems and other services, only the part of the premium that relates to medical services counts on your deduction. It may sound complicated, but your plan provider can split the costs for you. If you are unsure, consult your HR department, check your payment slip or look at the deductible premium payments listed in box 1 of your W-2 form.
- Medicare Part A premiums. You can only deduct Medicare Part A premiums if you are not covered by social security. Technically, under Social Security, the amount you pay for Medicare Part A is considered a wage tax – it is not considered a medical expense. For example, some government employees are only covered by a pension plan and in that case premiums for Medicare Part A are deductible.
- Medicare Part B Premiums. If you choose to register in Medicare Part B, the premiums you pay are qualified medical expenses that you can deduct. Your premium amount for Medicare B is shown in your social security statement.
- Medicare Part D premiums. Medicare Part D premiums are deductible.
- Premiums Long-term Insurance Insurance. To deduct premiums paid for long-term health insurance, the policy must be considered as a qualified long-term health policy. Your insurance agent can let you know if your plan is classified as qualified. However, you are limited in how much you can deduct depending on your age. If you and your spouse both have a policy, you can each deduct the amount corresponding to your age (these are 2014 limits):
- Age 40 or younger: $ 370
- Age 41 to 50: $ 700
- Age 51 to 60: $ 1400
- Age 61 to 70: $ 3,720
- Age 71 or older: $ 4,660
Health expenses that you cannot deduct
Even if a medical professional recommends them, you still cannot claim certain things, including:
- Non-prescribed medication. Even if your doctor has told you to stop smoking, your nicotine patches are not deductible. The same rule applies to aspirin and many other common self-care medicines.
- Life insurance. Although you may need life insurance, you can not deduct the premiums. Policy that covers injury, hospitalization and accidental blindness or limb loss is also not deductible.
- Funeral costs. Only expenses for the living are considered as medical expenses. Funeral and cremation services are not deductible.
- Childcare for healthy children. Although some childcare for sick or disabled children can be classified as medical expenses, regular childcare for children who do not need special help is not deductible as medical expenses. However, you can deduct it with the child discount.
- Health Club contributions. You may be reimbursed by your health insurance company, but you cannot deduct gymnastics payments as medical expenses. However, consider how much you will save in medical expenses by going regularly.
- Marijuana and other substances that are illegal at federal level. It is legal in many countries to buy marijuana if prescribed by a doctor. But the IRS uses federal law. In other words, you cannot get a tax exemption for state sanctioned use because the federal government still classifies it as illegal.
Use the timing and the archiving status
Even if you use a payment plan or spread your healthcare costs with a credit card, you can use the IRS to deduct healthcare costs in the year in which you make the payment. So if you know you will have many consecutive costs, you can take advantage of them to clump them together in one year and get the tax, but pay them off over time.
Even if you are married and one of the spouses has a large amount of medical costs but a low income, you may be able to receive a larger benefit by submitting yourself as a married tax return. Since 10% of the lower income is lower than 10% of your combined income, you may be able to deduct a much larger part than if you filed a joint declaration with Gezeckeck Thatcherijk. Because you must specify both, you must first consult an accountant to see what the overall effect would be.
Finally, unusually high medical costs are a flag for a tax audit, even if they are 100% legitimate. Protect yourself in the event of an audit by saving tax payments for at least seven years.
Tax breaks for the self-employed
If you do not work for a company that gives you access to a large group plan, health insurance premiums can be absolutely unaffordable. Self-employed persons can, however, deduct health insurance premiums as a deductible item above form 1040.
To take this deduction, you total the health insurance premiums paid during the year for yourself, your spouse and dependents and use the work-related health insurance sheet (included in the 1040 instructions form) to calculate the amount that you can deduct. Once calculated, enter that amount on line 29 of form 1040.
Healthcare costs can be high, especially if you are self-employed, but with a little planning and preparation you can reduce those costs by saving on your taxes. You may have to tax your budget all year round, but at least your profit margin may be even if you get your money back.
Do you intend to make use of these tax benefits? What types of medical expenses have you deducted in the past?
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