Medical costs can be burdensome , particularly for those who suffer from chronic health issues. While individuals may be forced to cover many costs out-of-pocket, they may also be eligible for medical expense deductions during tax season, which may help lower their tax liability.
First, individuals can lower their taxable income by maxing out contributions to a health savings account. HSAs are tax-advantaged accounts that individuals can access to pay for qualified medical expenses not covered by their insurance plan. For 2012, individuals can contribute a maximum of $3,100 to an HSA, while families can devote $6,250 to these accounts. This means that if a person made $50,000 in 2012, but contributed $2,000 to an HSA, that individual would only be taxed on $48,000. In addition, workers can make contributions to their accounts up until April 15 and count these contributions toward their 2012 taxes.
Deducting medical expenses from taxes
In addition to maxing out HSAs, individuals may also qualify for a medical expense deduction. In order to be eligible, any qualifying out-of-pocket health expenses must have exceeded 7.5 percent of their adjusted gross income. This threshold will increase to 10 percent in 2013. In addition, taxpayers must itemize their returns in order to claim the benefit. Individuals can write off medical expenses they paid for themselves, their spouses or dependents.
It's important for individuals to keep all receipts relating to medical expenses paid out-of-pocket. This will not only help them support their deduction claims if the IRS asks questions, but they can also use them to ensure their write-off is legitimate. There are a number of expenses the deduction covers, including contacts and glasses, medical equipment and devices, fees, prescriptions, crutches, dental treatments, insurance premiums and home care. While the list of qualifying expenses is long, there are some expenses that are not covered under the deduction. This includes cosmetic surgery, health club dues, weight loss programs and veterinary fees. For questions about which expenses are included under the medical expense deduction, individuals should ask their tax preparer to ensure they are filing correctly.
Lastly, the recession prompted more multigenerational households and an expanding "sandwich generation." For individuals who are providing financial support for ailing parents, the IRS also allows them to write off some of these expenses. In order to qualify, individuals must have provided at least half of the financial support for a parent that earned less than $3,800 in 2012, excluding Social Security. Keep in mind, however, that this person must be claimed as a dependent.