Next Step Tax & Accounting
  • Clients
    • Portal - Log In
    • Portal - Instructions

Blog

Do You Have an Effective Tax Strategy for Medical Expenses?

3/21/2017

 
Picture
Are your out-of-pocket medical expenses giving you any tax benefit? Do you realize that unless you have an effective medical expense tax strategy in place, it is likely that your out-of-pocket medical expenses are NOT tax deductible? ​
Without an effective tax strategy in place, your out-of-pocket medical expenses must meet two difficult thresholds before they can be deducted on your tax return.
  1. You must have enough Itemized Deductions on Schedule A to exceed the Standard Deduction (which is $12,700 for Married Filing Joint during 2017). AND
  2. Your qualified out of-pocket medical expenses must be greater than 10% of your Adjusted Gross Income.Here is an example: Let’s say you have enough deductions to Itemize on Schedule A and your Adjusted Gross Income is $65,000. The only way you can deduct out-of-pocket medical expenses is if they are greater than $6,500 ($65,000 x 10%). In this scenario, if your out-of-pocket medical expenses were $7,000, you can only deduct $500. What happens to the other $6,500? Nothing!

As we meet with new clients, this is often an issue that hasn’t been explained to them before. Many new clients say they have been submitting their medical expenses to their prior tax accountant thinking they were being included on the tax return and reducing their tax burden. However, unless you meet the two difficult thresholds above, you are getting no tax benefit.

One simple Tax Strategy for Medical Expenses to consider is a Health Savings Account (HSA). If you meet the IRS qualifications for an HSA, the HSA allows you to contribute money and receive a tax deduction. This tax deduction occurs simply by depositing the money to the HSA, even if you do not have any out-of-pocket medical expenses for the year.
  • This money is your money
  • It rolls forward year-to-year
  • It can be invested and grow with TAX FREE interest, dividends, and gains
  • You can use the funds TAX FREE for qualified medical expenses
  • Once you reach the age of 65, you can even take money out for non-medical expenses (in this case it would be subject to similar tax treatment of a Traditional IRA).

​​If you have out-of-pocket medical expenses, there is no doubt that you should have our team evaluate your current tax strategy and make sure you are maximizing your tax savings. Don’t assume that just because you submitted your medical expenses to your prior tax accountant that they are being deducted on your tax return. 

Comments are closed.

    Next Step Blog

    Our blog is intended as a tool to keep people informed about relevant tax and accounting issues. If you have a question or an idea for a post, let us know!

    Categories

    All
    Audits
    Capital Assets
    Deductions
    Due Dates
    Education
    Employees
    Fraud & Scams
    Income
    Insurance
    IRS Code
    Management
    New Legislation
    Payroll
    Planning
    Refunds & Payments
    Sales Tax
    Tax Deferral
    Tax Forms

    Archives

    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    July 2017
    June 2017
    May 2017
    April 2017
    March 2017
    February 2017
    January 2017
    December 2016

    RSS Feed

Copyright © 2023
Picture
  • Clients
    • Portal - Log In
    • Portal - Instructions