TAX TIME – MAKE SURE YOU DO NOT MISS A DEDUCTION
Hello everyone. I am very excited as this is my first blog post. My intention is for this to be an interactive and informative section of my website. If you have questions, or would like me to post information about a specific issue please email or call me.
Since its that time of year, I thought it would be helpful to include some important and accurate information regarding tax deductions when it comes to health expenses.
First on Medigap insurance – The cost of Medigap premiums is legally deductible. It is considered a medical expense and falls under the normal guidelines for this type of tax deduction. Medical expenses are deductible only if the taxpayer itemizes, and not all expenses can be applied to the deduction. Only the sum of the expenses that surpass 7.5% of the taxpayer’s adjusted gross income (AGI) is applicable. However, since Medicare beneficiaries are generally retired, their AGI may be relatively low compared to that of younger taxpayers who work fulltime.
Q. Can I deduct the cost of my Medicare premiums as a medical expense on my 1040 federal income tax return?
A. Yes, if you meet certain conditions required by the IRS. In fact, when filing an itemized Schedule A (1040) tax return, you may be able to deduct many medical and dental expenses as well as Medicare premiums. But you can deduct only those expenses that exceed 7.5 percent of your adjusted gross income (AGI).
Let’s say your AGI is $30,000. Of that, 7.5 percent is $2,250. If your total allowable medical expenses for the year are $4,000, you’d be able to deduct $1,750 ($4,000 minus $2,250). If, in this example, your medical expenses are less than $2,250, you couldn’t claim any as a deduction.
What are allowable medical expenses?
The list, as defined by the IRS, is long. It generally covers any of the costs of diagnosis and treatment of an illness or injury, including medical supplies and equipment and preventive medical care. Allowable expenses also include some items you probably wouldn’t expect—such as the cost of transportation to get medical care (even if you use your own vehicle) and the cost of altering your home or installing special equipment when done for medical reasons.
Specifically, if you’re a Medicare beneficiary, the costs you can count as allowable medical expenses include:
- Premiums for Part B, for Medicare private health plans and for Part D drug plans. If you have to pay a premium for Part A, that’s allowed too.
- Premiums for medigap supplemental insurance.
- The amount you pay out of pocket for deductibles and copayments or coinsurance for Medicare Parts A, B and D services.
- The amount you pay out of pocket for prescription drugs in the Part D doughnut hole.
- Amounts you pay out of pocket for services Medicare does not generally cover, such as routine checkups, hearing aids, medically necessary eyeglasses and contact lenses, dental treatment and nursing home care.
- Premiums for long-term care insurance (subject to certain limitations).
Costs you cannot count include:
- Premiums for group health insurance (such as employer-sponsored insurance) that are paid out of pretax dollars.
- Payments made for medical services that were paid by an insurer or any other source.
- Late penalties added to Part B or Part D premiums.
- Prescription drugs bought from abroad.
- Nonprescription drugs, vitamins and supplements, unless recommended by a physician to treat a specific medical condition.