Medical Expenses: How do I know what is deductible?

Out of pocket medical expenses can be expensive and take a toll on taxpayers who encounter unforeseen emergencies not fully covered by insurance.  If significant, you may be able to deduct these expenses and reduce your taxable income on your tax return.

The IRS allows you to deduct qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI) for the year.  The AGI is your gross income after above-the-line deductions such as an IRA deduction, student loan interest, etc.  If your medical expenses are more than 7.5% of your income after some above-line-deductions, then the IRS allows you to deduct medical expenses exceeding the 7.5% threshold.

Most taxpayers ask how they can deduct their expenses and itemize their deductions.  To do so, you will need to complete a Schedule A on your 1040 Form and include your receipts and documents.  Itemized deductions include an “a la carte” option where you list specific deductions such as mortgage interest, medical expenses, or state and local taxes, whereas a standard deduction is a flat amount based on your filing status. 

When filing your return, your tax preparer should advise you of what is or is not deductible.  Generally, any expenses that you are reimbursed for -- whether it is by your insurance or employer -- are not deductible.  

The IRS does not allow cosmetic procedures or other purchases for general health including toothpaste, vitamins, gym memberships to be considered as medical deductions.  Further, a taxpayer cannot deduct medical expenses for a different tax year, over-the-counter medicines, or the cost of non-prescription drugs (one exception includes insulin). 

Medical expenses which are deductible include preventative care, treatment, vision and dental care.  This also includes prescription drugs and medical appliances (glasses, contacts, dentures, and hearing aids, etc.), as well as visits to psychologists and psychiatrists.