Updated: Sep 21
If you, your spouse, or dependents had significant medical or dental costs in 2023, you may be able to deduct those expenses when you file your tax return this year. Here's what you need to know about medical and dental expenses and other benefits:💲
You Must Itemize
You can only claim medical expenses you paid for in 2023, and only if you itemize Schedule A on Form 1040. If you take the standard deduction, you can't claim these expenses.
Deduction is Limited
You can deduct all the qualified medical costs that you paid for during the year. However, for 2023, you can only deduct the amount that is more than 7.5% of your adjusted gross income.
Expenses Paid in 2023
You can include medical and dental expenses you paid during the year, regardless of when the services were provided. For example, if you use a credit card, include medical expenses you charge to your credit card in the year the charge is made, not when you actually pay the amount charged. Save your receipts and keep good records to substantiate your expenses.
No deduction for Reimbursed Expenses
Your total medical expenses for the year must be reduced by any reimbursement. Costs reimbursed by insurance or other sources do not qualify for a deduction. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.
Qualified Medical Expenses
Include qualified medical expenses you pay for yourself, your spouse, and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement, or those with a qualifying relative who is not your child.
You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment, or prevention of disease or treatment affecting any structure or function of the body. You can only deduct prescription medication and insulin (i.e., no over-the-counter medicines). You can also include premiums for medical, dental, and certain long-term care insurance in your expenses, and you can also include lactation supplies.
No Double Benefit
You can't claim a tax deduction for medical and dental expenses you paid for with funds from your Health Savings Accounts (HAS) or Flexible Spending Arrangements (FSA). Amounts paid with funds from those plans are usually tax-free. This rule prevents two tax benefits for the same expense.
The Importance of Record-Keeping for Medical Expenses
We can't stress enough the significance of meticulous record-keeping when it comes to medical and dental expenses. One slip could cost you the entire deduction. The IRS may not take your word for it; they'll want to see evidence in the form of invoices, prescriptions, and payment receipts. Even your mileage log if you claim transportation costs. Therefore, maintaining organized, accurate accounting of these transactions is crucial.
Additional Qualified Medical Expenses You Might Overlook
You might be familiar with common medical expenses like doctor visits or medication, but did you know that some less obvious costs could be eligible for deduction? These can range from long-term care services, psychotherapy, and even equipment like wheelchairs or specialized beds. Additionally, accounts payable automation solutions can help you keep track of these payments more effectively. Make sure you're not leaving money on the table by overlooking these items.
Special Medical Equipment and Home Improvements
If you've had to make improvements to your home due to medical necessity, such as ramps or wider doors for wheelchair access, these can be included in your medical expense deduction. The key is that the improvement must be primarily for medical care to qualify. While you might not be able to deduct the entire cost of the home improvement, the cost difference between a standard item and a specialized one often can be deducted.
Don't forget about dental expenses; they can pack a punch when it comes to deductions. From check-ups and cleanings to more advanced procedures like root canals or braces, they can significantly contribute to reaching that 7.5% threshold of your adjusted gross income. Just like medical expenses, ensure that these are not reimbursed through insurance or other means.
The Rule for Dependents and Divorced/Separated Parents
We touched upon this a little earlier, but it’s worth repeating for clarity. If you’re separated or divorced, you can still claim medical expenses for your children if you're the custodial parent. If you have a multiple support agreement, make sure you're the one claiming the child as a dependent to make these deductions.
Planning Ahead for Medical Expenses
If you're not meeting the 7.5% threshold, consider planning your medical expenses. For example, if you have an elective surgery, try to schedule it in a year when you know you'll be hitting that limit. This is where automated accounting can be handy, offering a clear roadmap of your past and future expenditures, helping you make well-informed decisions.
Don't Forget Your HSA or FSA
We mentioned earlier that you can't double-dip by using your HSA or FSA funds for deductible expenses. However, make sure you're optimizing the use of these accounts. They can help you manage your cash flow and set aside pre-tax dollars for medical expenses, ensuring you’re ready when those medical bills arrive.
Always consult a tax advisor to ensure you're making the most out of your deductions and visit the IRS website for additional information!
This blog is meant for educational purposes only. Articles contain general information about accounting and tax matters and is not tax advise and should not be treated as such. Do not rely on information from this website as an alternative to seeking assistance from a certified tax professional. Perlinger Consulting partners with certified tax professionals to assist our clients.