The Medical Expense Deduction in 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.)¹

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.

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.^1,2

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.²

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.²

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.²

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.

Citations.
1 – tinyurl.com/yabhctua [2/15/18]
2 – irs.gov/taxtopics/tc502 [1/31/18]

Disclosure.
Note: The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendation for any individual. Please remember that past performance of investments may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this post serves as the receipt of, or as a substitute for, personalized investment advice from Vermillion Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed within this newsletter to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.

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