What Qualifies as Medical Expense?
William Perez in Tax Planning Tips for Reducing Taxes Using Medical Expenses states that:
‘Over-the-counter treatments, nutritional supplements, vitamins, and first aid supplies do not qualify as tax-deductible expenses, unless those items are prescribed by a medical professional. Controlled substances (such as cocaine and marijuana) are not tax-deductible either, even if prescribed. Qualifying Medical Expenses include any expense incurred for the diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. The following general types of expenses qualify:
- Costs for medical services from physicians, surgeons, dentists and other medical professionals.
- Costs for medications prescribed by a medical professional.
- Costs for Over-the-counter treatments, nutritional supplements, vitamins, and first aid supplies prescribed by a medical professional.
- Costs for medical devices, equipment and supplies prescribed by a medical professional (such as eyeglasses).
- Costs for health and dental insurance.
- Costs for long-term care and long-term care insurance.
- Transportation and lodging costs for traveling to a health care facility, including mileage for driving for medical care.’
Example of the proposed itemized deduction savings based on a 2012 tax return of a married couple filing jointly.
Let’s say the hypothetical couple has property taxes, mortgage interest, and state income taxes withheld from their W-2, all totaling $6,000. In addition, this tax paying couple has $5,000 of medical related expenses. Together, all of this adds up to $11,000 but the Federal standard deduction is $11,900, so the taxpaying couple will deduct the higher of the two amounts, $11,900 is used as the standard deduction on their return.
Now using the above proposed example, lets look at the Arizona State return. Arizona has its own “standard” deduction of $9,354 for married couples, but since Arizona allows the taxpayer to deduct medical expenses ($6000 + $5000 = $11,000), the taxpayer will deduct the $11,000 since it is higher than $9,354. Therefore the taxpayer had “itemized” deductions on their Arizona tax return but took “standard” deductions on their Federal individual tax return. The medical expenses in this example allowed the couple to deduct $11,000 instead of $9,354.
You may also want to keep track of your mileage since it can also be deducted. You can deduct 23.5 cents per mile (as of Jan 2013) for driving to your Doctor's office or pharmacy. For example if you drove a total of 1000 miles to and from your pharmacy, doctors office, dentist, or chiropractor, you would have an additional $235 of potential deductible medical expense!
Flexible Spending Accounts and Health Reimbursement Accounts
William Perez in Tax Planning Tips for Reducing Taxes Using Medical Expenses suggests other ways to save money include Flexible spending accounts:
‘Some employees may be eligible to set up a medical flexible spending account (FSA) as an employee benefit through their employer. FSA plans permit employees to save pre-tax money using payroll deductions, and then submit various medical expenses for reimbursement. Some employers offer an employee benefit called a Health reimbursement account (HRA) whereby the employer will reimburse an employee for medical expenses. Reimbursements from an HRA are tax-free. Individuals can set up a health savings account (HSA) either themselves or through a group plan with their employer. HSAs, like FSAs, are a pre-tax savings account. Unlike FSAs, health savings plans do not have a “use-it-or-lose-it” feature for accumulated savings. Health savings account holders can use their savings funds to pay for medical expenses on a tax-free basis. If you do not have a pre-tax savings plan, the Arizona itemized state deduction may save you additional money.’n