A Guide to Maximizing Your Tax Savings: Claiming Medical Expenses as Deductions
Tax season can be a stressful time for many individuals, but there are ways to ease the burden and potentially reduce your tax bill. One often overlooked avenue for savings is claiming medical expenses as deductions on your tax return. By understanding the qualifications and rules set forth by the Internal Revenue Service (IRS), you can take advantage of this valuable tax break.
To be eligible for a medical expenses deduction, the costs incurred must meet the IRS definition. These expenses must be for the diagnosis, prevention, treatment, or cure of diseases or injuries. It is crucial to keep all receipts as documentation when claiming these costs. However, it is important to note that only expenses exceeding 7.5 percent of your adjusted gross income (AGI) can be deducted.
When it comes to deciding whether to use the standard deduction or itemize your deductions, it is essential to evaluate your individual circumstances. For the tax year 2024, the standard deduction is $14,600 for singles, $29,200 for married couples filing jointly, and $21,900 for heads of household. Seniors aged 65 or older or those who are blind have an even higher standard deduction. Singles in this category can claim an additional $1,550, bringing their total standard deduction to $16,150. Married couples filing jointly who meet these criteria can deduct an extra $3,100, resulting in a total standard deduction of $32,300.
It is worth noting that while the standard deduction may seem high, it is crucial to ensure that your itemized deductions exceed this amount to make it worthwhile. However, most individuals find that the standard deduction offers more tax savings.
When faced with medical expenses that require travel, there are additional deductions you can consider. According to Investopedia, you can deduct up to $50 per person per night for lodging when traveling for medical care. Additionally, the IRS allows you to claim 21 cents per mile for transportation to and from medical appointments or treatments.
The list of potential medical deductions is extensive, as outlined by TurboTax. These include payments made to doctors, surgeons, dentists, and other medical practitioners, hospital and nursing home care, prescription drugs, medical equipment such as wheelchairs and hearing aids, and much more. It is essential to keep track of all qualifying medical expenses and include them on Schedule A, Form 1040.
Self-employed individuals have a unique set of rules when it comes to deducting health insurance premiums. Forbes highlights that self-employed individuals who pay the entire cost of their health insurance premiums can deduct the entirety of it. This deduction is available even if you do not itemize since it is an above-the-line deduction.
There are a few crucial rules to keep in mind when claiming medical deductions. Firstly, you cannot have been reimbursed for those expenses. Additionally, the medical costs must have occurred within the tax year you are filing for. It is also important to note that certain expenses are not eligible for deduction, such as cosmetic surgery, non-prescription drugs, teeth whitening, and veterinary fees.
If you realize that you forgot to claim a qualifying expense from a previous year, the IRS allows you to amend your previous tax forms using Form 1040-X. You have up to three years to make a back claim, so it’s never too late to rectify any missed deductions.
Filing separately as a married couple may enable you to claim more deductions in certain situations. If one spouse earns significantly less than the other, filing separately could result in a larger tax deduction for medical bills belonging to the lower-earning spouse.
One additional way to maximize your tax savings is by opening a Health Savings Account (HSA). While it may not be suitable for everyone, it can provide significant benefits. To qualify, you need to purchase a high-deductible health policy. Contributions to an HSA are made with pretax dollars, providing an immediate tax deduction. Withdrawals from the account are tax-free when used for qualified medical expenses. The interest-earning account can also serve as a retirement fund, allowing penalty-free withdrawals during retirement.
By taking advantage of medical expense deductions and combining them with other possible tax deductions, you have the potential to save a substantial amount of money. Consulting with a tax professional can help you discover additional strategies to maximize your tax savings.
Disclaimer: The information provided in this article is for general informational purposes only and should not be construed as financial, legal, or tax advice. It is always advisable to consult with a qualified professional regarding your specific situation.
