 Personal Finance PowerPoint Presentation, Dental Insurance and Taxes. Prepare to get financially fit by practicing personal finance. Insurance is part of our long-term risk mitigation strategy where we follow the adage of measure twice, cut once, putting a formal process in place, looking something like this. We're going to set the goals, develop a plan, then we're going to put the plan in action, review the results, repeat the process periodically. Most of this information can be found at Investopedia. Is dental insurance tax deductible? Which you can find online. Take a look at the references, resources. Continue your research from there. This is by Bruce Miller, updated March 31, 2021. In prior presentations, we've been talking about insurance in general. Moving on to the medical insurance, which can be more complex due to the fact that the medical field is complex and the laws and regulations around it also complex. Now we're moving to the dental insurance, which has components of the medical insurance, but it's a little bit different in terms of your strategy. Might be a little bit different than classical type of insurance where you're trying to kind of safeguard against a big kind of event like getting sued or your house burning down for property insurance or dying for the life insurance, for example. So you can take a look at prior presentations to dive into that in more detail here. We're looking at the specifics of is dental insurance tax deductible? Dental insurance premiums may be tax deductible. It's always a maybe. It's always a maybe. I was asking a yes or no question. What do you get? It depends. It depends. So the Internal Revenue Service IRS says that to be deductible as a qualifying medical expense, the dental insurance must be for procedures to prevent or alleviate dental disease, including dental hygiene and preventative exams and treatments. Dental insurance that is for purely cosmetic purposes such as teeth whitening or cosmetic implants would not be deductible. So when we get into the deductibility of this kind of stuff, first we got to think about, well, can I deduct? Does it fall under like medical stuff and that kind of stuff? Do I get to deduct that at all? That will depend upon whether you're taking the itemized deductions or standard deductions. Most people or more people these days are taking the standard deduction because they were increased a couple years ago. So you'd have to be itemizing to be able to take the medical and dental stuff generally. And then there's going to be some like a cap that you got to clear before you can get the benefits of the medical and dental. And then we also have to think about whether or not the dental expenses are cosmetic or not. So we're thinking that the stuff that's there, once again, dental insurance premiums may be tax deductible. The Internal Revenue Service says that to be deductible as qualifying medical expenses, the dental insurance must be for procedures to prevent or alleviate dental disease, including dental hygiene and preventative exams as opposed to the category here for purely cosmetic purposes. So things that are often going to be expensive types of things like the teeth whitening and so on might be in the cosmetic realm. And therefore, even if you're able to get the medical and dental deduction, if you're itemizing, you might not be able to take that cosmetic stuff. So what does dental insurance typically cover? So that's not usually a problem, however, as dental insurance really covers cosmetic work. So when you're looking at the insurance itself, can I deduct the insurance? Well, it doesn't usually cover the cosmetic stuff. So it's not really that cosmetic kind of thing that's not deductible isn't really an issue oftentimes. It only covers procedures strictly related to health and wellness. It has a three-tier structure known as the 180-50 and a typical annual maximum amounting to a median of $1,500. That's the amount that the insurance company maxes out to pay on average or the median yearly. Preventative care such as annual cleaning, x-rays, and sealants is covered 100%. Basic procedures such as fillings, extracts, and periodontal treatment for gum disease are covered 80%. Major procedures, those are the crowns, bridges, inlays, and dentures are covered 50%. Depending on your plan, root canals can fall into either the basic or major category. These plans focus on preventative and basic care and not all procedures are covered. So what is considered cosmetic? So remember from a tax component, the cosmetic stuff is the stuff that you might not be able to deduct even if you can basically deduct because you're able to itemize and clear the threshold to take the medical and dental deduction. So cosmetic dentistry includes procedures that exist for the main purpose of improving the appearance of the patient's teeth and smile, whitening treatments, veneers, bonding, and straightening procedures such as Invisalign are included in this group. So this is often expensive kind of stuff, popular type of stuff, possibly not deductible type of stuff. So these procedures will widely known and quite popular tend not to be covered by the insurance and require the patient to pay the entire cost. So not only do they often have to pay the entire cost because they're not covered by the insurance, they might not be something that possibly could be a deductible item because of that cosmetic feature of it. And unfortunately such costs would not be tax deductible. So where are dental insurance premiums tax deductible? For most taxpayers, the cost of medical and dental insurance premiums paid during the tax year are deductible on form 1040 schedule A as a medical and dental expense. Those are the itemized deductions, which you would only be taking if you're not taking the standard deduction. Or in other words, if the itemized deductions were greater than the standard deduction, which will typically happen for more well off individuals, often the things that push people over are going to be owning a home because of the interest and the property taxes also being itemized deductions. Only the total of all qualified medical and dental expenses, including insurance premiums, that when combined exceed 10% of the taxpayers adjusted gross income AGI in 2020 form from 7.5% in 2019 will actually be included in the total of all itemized deductions. So in other words, you've got this AGI kind of floor that's also being involved. So you want to check what the current what the current law is, but that's the general kind of thing. It's going to be an itemized deduction, which you would only take if you can if you not taken the standard deduction if they're greater than the standard deduction. And then you also have this this AGI kind of floor that you're going to be have to clear that's your income level kind of floor just gross income. So for example, if a couple has an AGI of 100,000 and a total of 7,000 of qualified medical and dental expenses, including dental insurance premiums paid, then none of these expenses would be included as an itemized deduction because you've got the 100,000 of the of the AGI, which is the floor. So you've got this floor calculation. So even if you're itemizing, you might not be able to get a benefit in that case. If you're and you're talking about all of your medical expenses, including the dental stuff that would be covered in that case. So 10% of the AGI would be 10,000, which is higher than the couple's total medical and dental expenses. So again, check that AGI limit that the 10% because it was the 7.5%. So as time passes, that percentage can change, but the general idea has been there for some time. One, you'd be itemizing to take these kind of expenses possibly. And then two, you've got this kind of floor calculation to clear before you can get a benefit from the medical expenses, including the dental stuff. If you are self-employed, you can deduct the cost of dental insurance for yourself, your spouse, and your dependents in the form of adjustment to income. But only if you were self-employed and had a net profit for the year reported on Schedule C form 1040, 1040 SR, Schedule F form 1040, 1040 SR. So if you're self-employed, you got like a Schedule C business, for example, then you want to take a look at the laws and regulations related to your capacity possibly to be able to deduct like insurance, the medical insurance and possibly the dental insurance, which would not be, we're not talking about now deducting it on the Schedule A, but deducting it in another location kind of above the line deduction adjustment to income. And this rationale is kind of similar to the rationale that if you were a business like a C corporation, then they provide the benefits to employees oftentimes and they get a deduction for that. Well, if you're self-employed, you're kind of like your own employee, so you would think that you would get some component of a deduction for the medical insurance and the dental possibly. So it's not going to be deducted on the Schedule C. It's going to be deducted on an adjustment or above the line deduction. It's not going to be a Schedule A or itemized deduction, which is good because if you're taking the standard deduction other than the itemized deduction, you may still be able to get this benefit if self-employed. So you can dive into that in a bit more detail. In addition, the insurance plan must be established under your business and can be either in the name of the business or in the name of the individual. You deduct the cost of dental insurance on Schedule 1, Line 16. So notice the lines could change a bit, but the Schedule 1 is fairly standard for the last couple years at least. Line 16 as adjustments to income without having to itemize deductions on Form 1040 Schedule A with the 10% AGI limitation described above. So it would be more beneficial for many people that either aren't itemizing or you wouldn't have that kind of floor. You got to clear. Special considerations. Dental insurance premiums paid with funds from a flexible spending account in FSA or health savings account HSA are not deductible as these funds are pre-tax and the IRS does not allow a double tax benefit. So if you've got these kinds of funds that you know that you put the money into these funds to get a tax benefit that you're then going to spend on medical kind of items. So when you put the money into the funds, that's when you got the tax benefit and when you're taking the money out of the funds for paying of the medical stuff that's happening. You don't get to also get another deduction at that point in time because you already got a tax benefit when you put the money into the funds. So you got to be careful of that kind of double dipping type of situation if you're using something like an FSA or an HSA.