Have you been thinking about going to the chiropractor or dentist, but been putting it off because it’s not covered by insurance? If so, you should probably incur these and other uninsured health expenses before the end of the year. If you wait until 2013 or later, it will become much harder to deduct them from your income taxes.
For decades all taxpayers who itemize have been entitled to a tax deduction for medical and dental expenses for themselves, their spouses and their dependents. Eligible expenses include both health insurance premiums and out-of-pocket expenses not covered by insurance.
Unfortunately, there is a significant limitation on the deduction, which can make it useless for many taxpayers: You can deduct only the amount of your medical and dental expenses that are more than a specified percentage of your adjusted gross income (AGI). Your AGI is your total taxable income, minus deductions for retirement contributions and half of your self-employment taxes (if any), plus a few other items (as shown at the bottom of your Form 1040).
For many years, this percentage has been 7.5 percent. Thus, for example, if your AGI was $100,000, you could deduct your medical expenses as an itemized deduction only if, and to the extent, they exceed $7,500.
However, starting in 2013, it will go up to 10 percent (except for people 65 and over, who will be exempt from the increase until 2017). This will make it much more difficult to qualify for the deduction. For example, if your AGI is $100,000, you’ll be able to deduct medical expenses only if, and to the extent, they exceed $10,000.
Thus, if you need to incur any health-related out-of-pocket expenses, you should do so by the end of 2012, so you can take advantage of the lower 7.5 percent limit.
Keep in mind that lots of things you might not regard as medical expenses are deductible. Paying for these will add to your total medical expenses for the year.
The Internal Revenue Service broadly defines deductible medical expenses to include any payment for "the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body." That covers a lot of territory.
It includes, of course, money you spend on doctors and dentists as well as nursing care, hospitalization, lab fees and long-term care. But medical expenses include much more — for example, you may deduct fees you pay to chiropractors, psychiatrists, optometrists, psychologists, osteopaths, acupuncturists, podiatrists, and even Christian Science practitioners. You can also deduct things like transportation costs for health treatment and the cost of remodeling your home to accommodate a handicap (adding wheelchair ramps, for example).
However, there are some health-related expenses that are not deductible. For example, you may not deduct nonprescription drugs or the cost of cosmetic surgery (but reconstructive surgery is deductible). Nor can you deduct veterinary fees.
You can find a list of deductible and nondeductible medical expenses in IRS Publication 502, Medical and Dental Expenses.
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.
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