Do You Have an Effective Tax Strategy for Medical Expenses?

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.