Medical Deductions Robert M. Baldwin CPA, PFS, AEP Prepared by Katie M. Stradling

Brief Overview Prescription Prescription Medical insurance premiums paid Medical insurance premiums paid Long-Term care expenses Long-Term care expenses Medical Miles Medical Miles Lodging Lodging Doctors, Dentists Doctors, Dentists Hospitals Hospitals Lab Fees Lab Fees Eyeglasses and contracts Eyeglasses and contracts

Deduction A deduction is allowed only for expenses paid for the prevention or alleviation of a physical or mental defect or illness. A deduction is allowed only for expenses paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body.

Deductions continued You can only include the medical expenses you paid during the year, regardless of when the services were provided. Your total medical expenses for the year must be reduced by any reimbursement. It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital. You can only include the medical expenses you paid during the year, regardless of when the services were provided. Your total medical expenses for the year must be reduced by any reimbursement. It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

Non-Deductible You may not deduct funeral or burial expenses, health club dues, over–the– counter medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery. You may not deduct funeral or burial expenses, health club dues, over–the– counter medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery.

Qualified Medical Expenses Medical Professionals Medical Professionals Even specialists Even specialists Medical Facilities Medical Facilities Medical Procedures Medical Procedures Prescriptions Prescriptions

Insurance Calculate health insurance and long-term- care insurance costs not reimbursed or paid by an employer. Include Medicare deductions from Social Security benefits. There are dollar limits on long-term-care insurance premiums. Calculate health insurance and long-term- care insurance costs not reimbursed or paid by an employer. Include Medicare deductions from Social Security benefits. There are dollar limits on long-term-care insurance premiums.

Health Savings Accounts You cannot include in medical expenses any payment or distribution for medical expenses out of a health savings account. You cannot include in medical expenses any payment or distribution for medical expenses out of a health savings account. Contributions to health savings accounts are deducted separately. Contributions to health savings accounts are deducted separately.

Cafeteria Plan Also known as Section 125 Plans or "Flexible Spending Accounts," cafeteria plans allow employees to redirect compensation to pay for qualified unreimbursed medical expenses before personal taxes are computed on their paychecks. So, employees pay less taxes because their taxable income is lower. Also known as Section 125 Plans or "Flexible Spending Accounts," cafeteria plans allow employees to redirect compensation to pay for qualified unreimbursed medical expenses before personal taxes are computed on their paychecks. So, employees pay less taxes because their taxable income is lower. If you have this however you cannot not itemize the expenses that were paid through the cafeteria plan. If you have this however you cannot not itemize the expenses that were paid through the cafeteria plan.

Special Purchases Include costs of Include costs of Air conditioners Air conditioners Humidifiers Humidifiers Heaters Heaters Special beds Special beds Mattresses Mattresses Special telephones Special telephones Other medically required equipment Other medically required equipment Medical aids Medical aids A wig purchased because of hair lost during chemotherapy A wig purchased because of hair lost during chemotherapy if you obtained any of it for the purpose of medically helping an ill person if you obtained any of it for the purpose of medically helping an ill person

Home Improvements Add up medically needed home improvements. Only the cost that is more than the increase in fair market value to your home is a valid medical expense. Add up medically needed home improvements. Only the cost that is more than the increase in fair market value to your home is a valid medical expense.

Education Includes the cost of special education relating to the chronic disease of yourself, your spouse, or your dependent (if the costs are primarily for and essential to the medical care). Includes the cost of special education relating to the chronic disease of yourself, your spouse, or your dependent (if the costs are primarily for and essential to the medical care). However, you may not deduct the costs for meals and lodging while attending the educational program. However, you may not deduct the costs for meals and lodging while attending the educational program.

Transportation You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance can be deducted. If you use your car for medical transportation, you can deduct actual out–of–pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees. If you do not want to use your actual expenses, for 2008 you can use the standard medical mileage rate of 19 cents a mile from January 1 to June 30. Use a rate of 27 cents a mile for miles driven from July 1 to December 31. For 2009, the standard mileage rate for the cost of operating your car for medical reasons is 24 cents per mile.

Meals You can include in medical expenses the cost of meals at a hospital or similar institution if a principal reason for being there is to get medical care. You can include in medical expenses the cost of meals at a hospital or similar institution if a principal reason for being there is to get medical care. You cannot include in medical expenses the cost of meals that are not part of inpatient care. (i.e. No McDonalds) You cannot include in medical expenses the cost of meals that are not part of inpatient care. (i.e. No McDonalds)

Lodging You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to receive medical care. You can include in medical expenses the cost of meals and lodging at a hospital or similar institution if a principal reason for being there is to receive medical care. You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. You can include the cost of such lodging while away from home if all of the following requirements are met. You may be able to include in medical expenses the cost of lodging not provided in a hospital or similar institution. You can include the cost of such lodging while away from home if all of the following requirements are met. The lodging is primarily for and essential to medical care. The lodging is primarily for and essential to medical care. The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. The medical care is provided by a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital. The lodging is not lavish or extravagant under the circumstances. The lodging is not lavish or extravagant under the circumstances. There is no significant element of personal pleasure, recreation, or vacation in the travel away from home. There is no significant element of personal pleasure, recreation, or vacation in the travel away from home.

Lodging continued The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. You can include lodging for a person traveling with the person receiving the medical care. For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Meals are not included. The amount you include in medical expenses for lodging cannot be more than $50 for each night for each person. You can include lodging for a person traveling with the person receiving the medical care. For example, if a parent is traveling with a sick child, up to $100 per night can be included as a medical expense for lodging. Meals are not included. Do not include the cost of lodging while away from home for medical treatment if that treatment is not received from a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital or if that lodging is not primarily for or essential to the medical care received. Do not include the cost of lodging while away from home for medical treatment if that treatment is not received from a doctor in a licensed hospital or in a medical care facility related to, or the equivalent of, a licensed hospital or if that lodging is not primarily for or essential to the medical care received.

Standard Deductions Filing Status Deduction Amount 2008 Deduction Amount 2009 Single or Married Filing separately $5,450$5,700 Married filing jointly $10,900$11,400 Head of household $8,000$8,350

Limitation Calculation Total all medical expenses Total all medical expenses Subtract insurance payments Subtract insurance payments Subtract (7.5% x AGI - adjusted gross income) Subtract (7.5% x AGI - adjusted gross income)

Example Wages of $100,000 Wages of $100,000 Interest Income of $10,000 Interest Income of $10,000 Ira deduction of $5,000 Ira deduction of $5,000 Medical expenses: Medical expenses: Insurance expense $10,000 Insurance expense $10,000 Parking fees $1,000 Parking fees $1,000 Lab fees $30,000 Lab fees $30,000

Example Calculated AGI = $105,000 AGI = $105,000 Medical Expenses = $41,000 Medical Expenses = $41, % x 105,000 = $7, % x 105,000 = $7,875 Total Medical Deductions 41,000 – 7,875 = $33,125 Total Medical Deductions 41,000 – 7,875 = $33,125

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Childcare My husband and I both work. As a result of our child's cancer, we plan to hire someone to care for her in our home. Can we include this cost as a medical expense? Yes, you can include as medical expenses wages and other amounts you pay to someone for services such as giving medications, changing dressings, bathing, and grooming. They need not be performed by a nurse as long as they are services generally performed by nurses. If you hire someone who also performs personal and household services, these amounts cannot be included among your medical expenses unless your child's condition qualifies as requiring long-term care services.

Reduction of Medical Expenses Last year we did not deduct any medical expenses because they were less than 7.5% of our adjusted gross income. This year we will be deducting our medical expenses. We also received reimbursement of some of last year's expenses. Do we have to reduce our medical expenses by this reimbursement? No, you do not reduce your current-year medical expenses for reimbursements you received in the current year if you did not deduct the medical expenses in the year you paid them.

Special School My child suffers from a learning disability as a result of his cancer. Can we include the cost of sending him to a special school as a medical expense? Yes, you can include tuition and other fees you pay to a special school. If you hire a tutor for your child, you can include these fees as well. In both instances, however, the expenses must result from your doctor's recommendation.