Rx For Your Medical Costs
If you want to save some aches and pains at tax time, start planning now to take tax advantage of your medical costs in 1999.
The first thing to understand: you can only deduct the amount of your medical and dental expenses that are more than 7.5 percent of your adjusted gross income. For someone with an AGI of $40,000 that would be $3,000 in medical expenses before the deductions even start. You can't deduct medical expenses that were reimbursed to you or paid directly by an insurance company.
Now some good news. You can include medical and dental expenses you paid in 1999, even if the service was provided in 1998. Generally, advance medical payments aren't deductible until the services are rendered. There are exceptions, for such things as prepaid care of retirees to a retirement home obligated to provide care.
Don't overlook lump payments of lingering medical bills from prior years that you've been paying by monthly installments. Paying down a bill in 1999 may provide a deduction sufficient to make it worthwhile.
Who's included?
You may generally include all the medical expenses you pay for yourself and your spouse, your dependents, including children and parents or relatives - if they qualify as dependents. This would also include an adopted child.
What's deductible?
Let's look at some of the potentially overlooked items first. Do you have arthritis and need special tools or to change the hardware on kitchen cabinets or doors? Or do you need to build a ramp or widen a bathroom door to accommodate a wheelchair-bound parent living with you?
Medical expenses may include the amount of capital improvements for special equipment installed in your home, if their main purpose is medical care. But watch out, the cost of permanent changes that increase the value of your property may only be partly deductible.
You must reduce the medical expense by the amount of the estimated increase in value. For example, your husband has a heart condition and his doctor recommends installing an elevator in your home so he won't have to climb the stairs. Cost of the elevator: $8,000. Appraised increased value to the home with the elevator $4,400. You medical deduction: $8,000 - $4,400 = $3,600.
Capital expenses might include ramps, special railings or support bars in bathrooms, grading the ground for access to a house or lowering kitchen cabinets, as long as they are reasonable costs to accommodate a home to a disabled person. Changes for aesthetic reasons aren't considered medical costs.
Medical expenses generally include amounts you paid for diagnosis, cure, treatment or prevention of physical or mental conditions. Medical care may also include the premiums you pay for an insurance policy that covers the expenses of hospitalization, prescription drugs and other medical care.
You can't include in medical and dental deductions the insurance premiums paid by an employer-sponsored health insurance plan, unlesthe premiums are included in Box 1 of your Form W-2. But you may include amounts you pay for transportation to the doctor or hospital. Long-term care insurance contracts may also be deductible, but they have limits so you should research the specifics for your situation.
Medical expenses include such things as fees paid to a Christian Science practitioner for medical care or to a chiropractor. Cosmetic surgery generally isn't deductible unless it's necessary to improve a deformity or disfiguring disease or accident trauma. The face lift and hair plugs don't count.
But you can include deductions for dentures, acupuncture, birth control pills or an abortion, eye glasses, lab fees, the tuition fees for a special school for a child with severe learning disabilities, removal of lead-based paint and prescription medicines.
These are only a few examples of the costs you may deduct. For more details read IRS Publication 502, Medical and Dental Expenses.
Non-deductible expenses
There are some things people erroneously include as deductions but really don't qualify. The cost of weight loss programs - unless your doctor prescribes the program. Maternity clothes are another no-go.
You can't claim health club membership dues, diaper service (unless it is to relieve the effects of a particular disease) or dancing lessons, swimming lessons or similar costs for improving your general health - even if your doctor recommends it.
Keep copies of the medical bills with the names of those you paid and the amounts of the bills in case the claims are questioned by the IRS.
Medical expenses are reported on lines one through four on your Schedule A, attached to Form 1040.
Written By Pam MacLean, CBS MarketWatch