The Medical Expense Deduction in 2018

September 11, 2018
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Tax reform has lowered the threshold.

 If you itemize, you should note the reduced medical deduction threshold for 2018. This year, you can deduct qualified medical expenses exceeding 7.5% of your adjusted gross income. Next year, the threshold for the medical expense deduction returns to 10% of AGI. (The Tax Cuts & Jobs Act of 2018 also allowed the 7.5% threshold to apply retroactively to the 2017 tax year.)

So, if you are considering surgery or dental work in the future that could mean sizable out-of-pocket expenses for you, it might be better from a tax standpoint to schedule these procedures for 2018 instead of 2019.

What kinds of unreimbursed expenses qualify for the deduction? The list is long. For a start, the Internal Revenue Service says these types of expenses may qualify as tax deductible: out-of-pocket fees to medical and dental professionals, psychiatrists and psychologists, and certain nontraditional medical practitioners; money spent to participate in a weight-loss program in response to a doctor-diagnosed condition or disease; payments for prescription drugs and insulin; payments for smoking cessation programs and prescription drugs to facilitate nicotine withdrawal; money spent on inpatient treatment or acupuncture at a rehab facility; and, money spent on inpatient hospital care or residential nursing home care. That last item deserves further explanation regarding nursing homes. If a taxpayer is in a nursing home first and foremost to receive medical care, the I.R.S. says that the cost of that care and any lodging and meal costs borne by the taxpayer are deductible. Should the taxpayer reside in a nursing home primarily for other reasons, the I.R.S. limits the deduction to the medical care provided.

Other potential medical expense deductions are worth noting. You can of course deduct payments made for health care aids such as wheelchairs, false teeth, service animals and guide dogs, hearing aids, contact lenses, and reading or prescription eyeglasses. In addition, you can usually deduct insurance premiums that you have paid for insurance policies covering medical care or long-term care (as opposed to premiums paid on these policies by your employer). Lastly, you can often deduct transportation costs you incur related to qualified medical expenses: bus, train, and plane fares; gasoline expenses; parking and toll fees.

What kinds of expenses do not qualify? The cost of basic toiletries and toothpaste cannot be deducted; the same goes for cosmetics. Expenses for cosmetic surgery are usually not deductible, and neither are expenses for wellness programs or vacations. Non-prescription, over-the-counter drugs or medicines are non-deductible. Nicotine patches and gum may not be deducted, unless they have been prescribed for you. Burial and funeral expenses are also ineligible for the medical expense deduction.

Talk to a tax professional about the possibilities here. You may find it advantageous to itemize in 2018 using Schedule A so that you can claim medical expense deductions and take advantage of what could be the last year for the 7.5% threshold. Or, you might find that taking the newly enlarged standard deduction makes more financial sense. If you think your household will have significant medical expenses this year, it might be wise to compare the options.

At HFG Wealth Management, we embrace a method of financial planning known as Financial Life Planning™. We believe this is a financially effective and personally rewarding approach to creating a practical, lasting financial plan. As financial professionals using the life planning approach, our purpose is to assist individuals and families in creating a long-term vision that is consistent with their core values. At HFG we recognize that life events and life transitions can impact your financial responsibilities and your vision of the future. We are here to provide you with tips and strategies to get you started and help you reach your financial and life goals at every stage. For more information, please visit www.hfgwm.com or call 832.585.0110.

“The information contain herein is general in nature and may not be suitable for everyone. We encourage you to give us a call, to discuss your specific situation and to help determine the appropriate course of action.”

 

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