Medical Expenses Add Up to Deductions

Medical expenses can be quite costly, and take a lot of money out of your hands. Instead of deducting your hard earned cash from your wallet, consider taking a deduction of your unreimbursed medical expenses at tax time.

Beginning January 1, 2013, you are able to deduct your total medical expenses paid for you, your partner, and eligible dependents that exceeds 10% of your adjusted gross income. If you or your partner are age 65 or older, the limit is decreased to 7.5%, and remains in effect until December 31, 2016.

To determine your deduction, you’ll have to itemize your expenses and report them on a Schedule A of your Form 1040. Some deductible medical expenses include:

• Fees paid to a doctor, dentist, surgeon, chiropractor, psychiatrist, psychologist and nontraditional medical practitioners.
• Costs for in-patient care, including nursing home services, meals, and lodging in a health care facility.
• Acupuncture, rehab treatment, or smoking cessation program, as long as the treatment is prescribed by a doctor.
• Weight-loss treatment to help with a specific disease or medical condition, excluding the cost of special diet foods and health club memberships
• Insulin and prescription drug costs
• Prosthetic teeth, eyeglasses, contacts, hearing aids, wheelchairs, guide dogs, crutches or other medical supply
• Conference costs and transportation relating to a chronic disease from which you suffer, although meals and lodging at the conference are non-deductible
• Transportation costs to and from a hospital or other medical facility, subject to the standard regulations for travel expenses, including mileage rates
• Insurance premiums that cover medical care or long-term care. Employees shouldn’t deduct premiums paid to an employer sponsored plan unless the premiums are listed on your W-2 in Box 1.

Self-employed individuals may be eligible to take a deduction for self-employment insurance. Generally, it’s taken as an adjustment to income instead of an itemized deduction. If you can’t claim the entire cost of your self-employed medical insurance premiums, you can take the rest of your expense as an itemized deduction when you file your taxes.

Prescription drugs, including insulin and other over the counter drugs acquired through a prescriptions can be deducted as a medical expense. A dr. must provide a written or electronic order for the medication in compliance with all laws of the state where the expense is incurred in order for the deduction to qualify.

Funeral expenses, burial costs, over-the-counter drugs without a prescription, and personal use items such as toiletries are not eligible for deduction. You also can’t deduct nicotine gum or patches, or other smoking cessation devices without a written prescription.

You can only deduct medical expenses that you paid during the tax year in which you are filing your return. If you were reimbursed by any third party, regardless of whether it was paid directly to you or the doctor or hospital, you must subtract the reimbursement from your total expenses before deduction.

Deducting Entertainment Expenses for Business

If you happen to entertain your customers, employee or any others in your business you may be able to deduction expenses that are deemed ordinary and necessary for doing business. Expenses such as these may be deducted if they are related or associated with your business directly.

Proof of the expense must be provided and have information such as the cost, date and location of the entertainment. The relationship of those entertained may also be required to be furnished. Typical cases allow only for a deduction of 50% of meal and entertainment costs.

If you are an employee subject to reimbursement for entertainment expenses, any reimbursement through an accountable plan should not appear on your W-2 as income. If you were not reimbursed or were reimbursed through a non-accountable plan you can deduct expenses through Form 2106, Employee Business Expenses, or Form 2106, Unreimbursed Employee Business Expense. Deductions such as these will appear on your tax return as itemized and are usually subject to a limit of 2% of your adjusted gross income.

If you are self-employed you may take deductions by using Form 1040, Schedule C, Profit or Loss from Business or Form 1040, Schedule C-EZ, Net Profit Form Business. If you are a farmer you will use Form 1040, Schedule F, Profit or Loss from Farming to deduct these expenses.

Going to School? Deduct Your Expenses

Education expenses can add up quickly, and any kind of financial relief can really make a difference. You may be able to deduct certain education expenses at tax time. If you pay tuition for yourself, a spouse, or another dependent, you may qualify to deduct a portion of the expenses. However, it may be more worthwhile to look at using a credit for tuition and fees instead of directly deducting them. You should first check out eligibility for:

• The American Opportunity Tax Credit (AOTC)
• Lifetime Learning Credit (LLC)
• Deducting the expense as an itemized business expense

If you want to deduct tuition and fees, you don’t have to itemize expenses. Instead, you can just adjust your income on your Form 1040. If you are married, you have to file jointly in order to claim education expenses, and you can’t be listed as a dependent on another taxpayers return.

Taxpayers are subject to certain limitations related to their modified adjusted gross income. Those with a MAGI that exceeds the limit will receive a reduction or even a complete elimination of the education expense deduction depending on which status is used to file. You can’t claim a deduction along with one of the educational credits for the same student in one tax year. Although, you may be able to combine your tuition and fees with eligible business expenses. These expenses can’t be claimed more than once.

You can’t claim a deduction if your tuition or other expenses were paid through a grant, scholarship, fellowship, or other eligible savings plan. You also can’t deduct expenses you paid using distributions from an educational tuition plan, though you can claim the portion that is equal to the contribution you made.