Ah yes…it is that time of year again. April 15th is right around the corner and you are probably getting close to writing a nice check to the IRS. As the caregiving process continues, it becomes more and more apparent that tracking medical expenses is a necessity. Not only are medical expenses, well… expensive, most are tax deductible.
My first bit of advice for any person who has be catapulted into this world of hospitals, insurance premiums, deductibles, and co-payments is to have a meeting with your CPA. If you do not currently have a CPA, ask for referrals and get one. Once you have a relationship established with your accountant, ask what he or she recommends you start tracking and how he or she recommends you go about doing this.
Helpful Tip #1: Have an understanding of what is and is not tax deductible.
Deductible medical expenses may include but are not limited to (irs.gov):
Payments of fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners
Payments for in-patient hospital care or nursing home services, including the cost of meals and lodging charged by the hospital or nursing home
Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction, for participation in a smoking-cessation program and for drugs to alleviate nicotine withdrawal that require a prescription
Payments to participate in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician but not ordinarily, payments for diet food items or the payment of health club dues
Payments for insulin and payments for drugs that require a prescription
Payments for admission and transportation to a medical conference relating to a chronic disease that you, your spouse, or your dependents have (if the costs are primarily for and essential to medical care necessitated medical care). However, you may not deduct the costs for meals and lodging while attending the medical conference
Payments for false teeth, reading or prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and for guide dogs for the blind or deaf
Payments for transportation primarily for and essential to medical care that qualify as medical expenses, such as, payments of the actual fare for a taxi, bus, train, or ambulance or for medical transportation by personal car, the amount of your actual out-of-pocket expenses such as for gas and oil, or the amount of the standard mileage rate for medical expenses, plus the cost of tolls and parking fees
Helpful Tip #2: Open a “Medical Checking Account.”
When it became apparent that Mom was going to be in this battle for the long haul, and expenses began to add up, we opened a “Medical Checking Account” at our local bank. Each month an electronic funds transfer was made from our family “Personal Account” to the “Medical Account.” Any expense that was questionably a medical deduction was purchased out of this account. Each month I reconciled the account via Quicken (any accounting system will do); each purchase was categorized based on category suggestions from our CPA. At the end of the year, we had a very organized financial outline of our medical expenses. By purchasing everything and anything we “thought” was medically relevant and deductible out of this account, we saved ourselves from “missing” any deductions.
It is important to know that when itemizing your medical deductions, you may only deduct the amount of which your care exceeds 7.5% of your adjusted gross income (AGI). Beginning December 31, 2012, you may only deduct the amount of which your care exceeds 10% of your AGI. Many of my clients at the sports massage office choose not to itemize because they rarely spend more than 7.5% of their AGI on medical care. Sadly, the moment you, your spouse or your dependent are diagnosed with a chronic illness, the 7.5% is easily attained.
Do yourself a favor; track your expenses and stay organized.