 Income tax 2022-2023, medical and dental expenses. Let's do some wealth preservation with some tax preparation. Most of this information comes from the Schedule A Tax Year 2022 instructions you can find at the IRS website, irs.gov, irs.gov. When looking at the tax formula, we're focused now on the itemized deductions, remembering that the first half of the income tax formula is, in essence, an income statement where we have income minus the equivalent of expenses, those being the deductions, equals the equivalent of net income, that being taxable income. Everything's flipped on its head for taxes. We want taxable income as low as possible, as opposed to normally when we want net income as high as possible. So that means that we would like to have income, but we would like it to be legally exempt if we could have that for the income line. And then on the deductions, as we're talking about here, the itemized deductions, we want them as high as possible. So we have this breakout from the above the line deductions, the adjustments to income, we've talked about in a prior section, and the below the line deductions, which are the higher of the standard or itemized deductions. Whenever we think about the itemized deductions, we have to always consider what that standard deduction hurdle is, because the itemized deductions will not help us unless we clear the standard deduction hurdle. The standard deduction hurdle will be dependent upon filing status. If you look at the first page of the form 1040, we're down here on line number 12, which is the standard deduction or itemized deduction. And these are the numbers for the standard deductions on the left, so you can get a feel for what they are for married and single. So you can get an idea as to whether it would be worthwhile to spend a lot of time picking up the information for the itemized deductions. So this is the schedule A or a part of it, the top half of it. So this being the itemized deductions, our focus, we're looking now at the medical and dental expenses. Now note that the medical and dental are usually not the one singular or main thing that pushes people over the threshold from standard deduction to itemized deduction. That thing usually being the purchase of a home, because the home mortgage interest and the property taxes related to it are significant factors. So once you're itemizing, then it might be worthwhile to look into things like the medical expenses more closely, because any deduction or any capacity to deduct medical expenses will now increase the itemized deductions, which have already cleared. Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. The hurdle. That said, if there was a big catastrophe that happened, then the medical expenses in and of themselves might be really high for a particular year and could push people over the hurdle in and of themselves. Now one thing to just keep in mind with the medical and dental expenses is we have this component you can see here, which says 7.5% of line 11, which is basically your adjusted gross income. That's a hurdle that has to be cleared before you get any benefit from the medical expenses. So note, most of the time when we talk about itemized deductions, the people taking them are more well off more wealthy individuals are more likely to be itemizing. And then the medical expenses kind of works on the other side of things as well because the more well off someone is the higher this hurdle will be because it's going to be they have to clear 7.5% of their AGI. So more wealthy individuals are more likely to itemize, but they're also increasing the hurdle for the medical expenses to see if they would be able to deduct any of the medical expenses. All right, given that these are the standard deductions and these are the things we want to keep in mind in order to determine if someone is going to be itemizing or not. So the medical and dental expenses, you can deduct only the part of your medical and dental expenses that exceed 7.5% of the amount of your adjusted gross income on form 1040 or 1040 SR line 11. So you have to clear that hurdle before they're even added to the total of the Schedule A. And then of course the total of the Schedule A has to clear the standard deduction before it would be beneficial to take the standard of the itemized deduction. So caution, if you receive a distribution from a health savings account or a medical savings account in 2022, see Publication 969 to figure your deduction. So notice there's other benefits for the health savings account, which could complicate the ability to take the deduction because you might have other benefits you get from that. And so if that complication is in place, you can get more detailed Publication 969, which is on the IRS website IRS.gov. Deceased taxpayer, certain medical expenses paid out of a deceased taxpayers estate can be claimed on the deceased taxpayers final return. So that would be somewhat of an unusual type of situation, but one that does come up the medical deductions for the final return. So if that case comes up, you could see Publication 502 IRS website for more detail, more information. Publication 502 discusses the types of expenses you can and can't deduct. It also explains when you can deduct capital expenses and special care expenses for disabled persons. Note when we get into this whole range of deducting medical expenses, it gets quite complex because now you have to define what kind of expenses count as medical expenses or not. And as you can imagine, people have basically come up with all kinds of things that you would say, well, that doesn't really make, I don't think you should get a deduct. Like they got a jacuzzi or something or like that. So my doctor said I need a medical whirlpool or something like that. You know, these kind of things can come up. My doctor said I needed a vacation to the Bahamas or something. So we have to be able to define, you know, these medical expenses and if they're not defined expressly in the code, then we might have to look at the regulations and so on and possibly even to like court cases and whatnot. But usually it's a fairly straightforward type of thing. It's been kind of worked out, but you can imagine that there could be a lot of gray areas. So examples of medical and dental payments you can include in calculating your total medical expenses. To the extent you weren't reimbursed in calculating your total medical expenses, you can include what you paid for insurance premiums for medical and dental care, including premiums for qualified long-term care insurance contracts as defined in publication 502. But see limit on long-term care premiums you can deduct later. So note that when we think of medical care, we kind of divide it out between long-term care, which is care for someone, you know, you're paying for insurance in the event that you're no longer capable of taking care of yourselves, which is a very, you know, expensive type of thing versus kind of normal medical insurance. And then reduce the insurance premiums by self-employed health insurance deductions you claim on Schedule 1, Line 17. So we talked about if you're self-employed, have a Schedule C, you might be able to deduct insurance on Schedule 1. Now if you deduct it there, you can't also deduct it on the Schedule A because that's what I would call double dipping, getting two deductions for the same payment. Now it would often be beneficial to be able to deduct it on the Schedule C a lot of the times because then even if you're not itemizing you would still get the deduction by being able to deduct it on Schedule C. So you can't include insurance premiums paid by making a pre-tax reduction to your employee compensation because these amounts are already being excluded from your income by not being able to include in Box 1 of your forms W-2. So this gets a little bit messy because remember that most of the time, a lot of the times the medical expenses are paid by your employer. So when they're paid by the employer, then you would think that whatever benefit that you're going to get, if you don't have to include those in income or you get a benefit from them, it might be showing already by reducing Box 1 of the W-2 form and in that case, you've already kind of lowered your income if that was the case. So you can't lower the Box 1 of the W-2 form and take it again because once again you would be like double dipping in that case. So if you already a retired public safety officer, you can't include any premiums you paid to the extent they were paid for with tax-free distributions from your retirement pan. Prescription medicines or insulin, so that's another item that could be included. Acupuncturists, so these are where we get into the more somewhat less orthodox kind of thing. Acupuncturists, chiropractors, dentists, eye doctors, medical doctors, occupational therapists, osteopathic doctors, doctors, osteopathic, physical therapists, podiatrists, psychiatrists, psychoanalysis, and psychologists. So we have a wide range and you can see throughout time as we've been thinking about these medical deductions that the more recent ads or the things that could have been argued about more recently, the chiropractors and the chiropractors and then of course whether kind of mental things should be included as well. So those get into kind of messy territory sometimes when we're trying to determine whether or not something should be deductible or included as medical expenses. So medical examinations, x-rays and laboratory services and insulin treatments are your doctor ordered. So those are some other things that could be included. Diagnostic tests such as a full-body jukebox lamb, pre-scan, pregnancy test or blood sugar test kit. Nursing help including your share of the employment taxes paid. If you paid someone to do both nursing and housework, you can deduct only the cost of the nursing help. So now you've got someone that you're paying for medical care and whatnot, but they might be doing multiple things. So now you've got to parse up what they're doing between the nursing and other stuff. Hospital care including meals and lodging, clinic costs and lab fees, qualified long-term care services. You can see publication 502 for more detail there. A weight loss program as treatment for a specific disease including obesity diagnosed by a doctor. This is another one that's kind of controversial because now you're talking about, well, you could get into the realm of dieting and if you get into the realm of dieting, you could start to say, well, can't I deduct the food I eat or something like that? So you can see it gets kind of a messy area and the idea of saying that overweightness is a disease. Again, it's almost a political categorization as to when they categorize something as a disease or not because then that classification ties to things like the tax code and other kind of benefits. So that kind of influences when they call something whether it's a disease or not, which is another debatable area. Medical treatment at a center for drug or alcohol addiction. Medical aids such as eyeglasses, contact lenses, hearing aids, braces, crutches, wheelchairs and guide dogs including the cost of maintaining them. So some of these things can get quite expensive like wheelchairs or like a lift that carries you up. The stairs or that kind of stuff can be quite expensive and if there's a big cost on something like that, then that could be in and of itself something that pushes someone over from standard deduction to itemizing. Surgery to improve defective vision such as laser eye surgery or radio keratotomy. I'm not sure exactly what that is. I know what laser eye surgery is. I probably need it. Lodging expenses but not meals while away from home to receive medical care provided by a physician in a hospital or medical care facility related to a hospital provided there was no significant element of personal pleasure, recreation or vacation in the travel. So now you have to travel somewhere for medical purposes. So if it's not a vacation, you didn't go to Disneyland across the street or something like that, then you may be able to deduct the travel expenses. Don't deduct more than $50 a night for each person who meets the requirement of publication 502 under lodging. Fairly low limit right there. So ambulance service and other travel costs to get medical care. So obviously an ambulance can be quite expensive. If you use your own car, you can include what you spent for gas and oil to go to and from the place you received the care. Or you can include 18 cents a mile for January 1st through June 30th and 22 cents a mile from July 1st through December 31st. Now note that those mileage rates are different oftentimes than the business mileage rates. So you might think I know what the mileage rates are but they could be different depending on what they're being applied to, where they're being applied in this case the Schedule A medical expenses as opposed to Schedule C for the mileage rates. Add parking and tolls to the amount you claim under either method. Cost of breast pumps and supplies that assist lactation. Personal protection, I'm assuming you can only add those costs if you're lactating for feeding a child or if you're just lactating for no reason. Personal protective equipment such as masks, hand sanitizer and sanitizing wipes for the primary purpose of preventing the spread of coronavirus. So obviously they kind of tacked that one on in recent years. So then limit on long-term care premiums you can include. So the amount you can include for qualified long-term care insurance contracts. So remember when we're talking about insurance you've got insurance for normal insurance and then the long-term care is the insurance for if you end up in a situation where you have to have just complete care like all the time and that's the insurance you're paying. So they're kind of two different categories of insurance. So as defined in Publication 502 it depends on the age at the end of 2022 of the person for whom the premiums were paid. See the following chart for details. So if the person was at the end of 2022 age 40, 41 to 50 and so on, then the most you can include are the table on down below. Okay examples of medical and dental payments you can't include. So we looked at the things you can include. Remember there's a lot of gray area. If you got imaginative here you might start coming up with a lot of stuff. A lot of people have come up with this stuff before so it's probably on a list of things that the IRS has tried to whittle down. So the cost of diet food because they included obesity as a disease you can see how people would clearly then say well the food I buy should be deductible which would be quite messy if that was the cosmetic surgery unless it was necessary to improve deformity related to a congenital abnormality an injury from an accident or trauma or a disfiguring disease. So this gets a messy kind of categorization as well when you have surgery was it something that you had to have or was it cosmetic type of surgery which is a difficult line sometimes to parse. Life insurance and income protection policies the Medicare tax on your wages and tips or the Medicare tax paid as part of the self employment tax or household employment taxes. So when you're paying to Medicare you might say well that's a Medicare that's a that's a medical expense but you're really paying into kind of a benefit program and there's been some some difference in thought over whether Social Security and Medicare is a is a benefit program or or is it something that's like like going to be for everyone kind of kind of thing so and that kind of leads to different thoughts as to whether you should be able to include it as a as an expense or something but in the case tip as you were a as you were age 65 or older but not entitled to Social Security benefits you can include premiums you voluntarily paid for Medicare Part A coverage. So there could be you know different different components of the Medicare coverage some of which you might be able to include so Medicare Part A coverage here nursing care for a healthy baby but you may be able to take a credit for the amount you paid. So you can see the instructions for form 2441 for more detail there and then we have the illegal operation operations or drugs so you can't deduct something that's illegal so if you went out of the country like to Mexico to get to you know get whatever then can't really imported drugs not approved by the U.S. Food and Drug Administration the FDA so obviously the drugs here are more expensive because of we have the regulations on them and so on but if you buy foreign drugs you can't deduct the drugs so this includes foreign made versions of U.S. approved drugs manufactured without FDA approval non-prescription medicines other than insulin including nicotine gum and certain nicotine patches so you can't do the nicotine patches then travel your doctor told you to take for the rest for rest or for change so obviously people would try to pick that one up my doctor said I needed to go to the Bahamas and sit and a hammock can't do that funeral burial or cremation costs line one medical and dental expenses enter the total of your medical and dental expenses after you reduce these expenses by any payments received from insurance or other sources in other words if you got repaid by insurance well then you didn't really pay the expense because you got reimbursed for it so if advanced payments of the premium tax credit were made or you think you may be able eligible to claim premium tax credit fill out form 8962 before filling out schedule A line one C publication 502 for how to figure your medical and dental expenses deduction now the premium tax credit is usually aimed at low to moderate income individuals and that means that the premiums that you paid were lowered because they're trying to anticipate the tax credit so then you've got to figure out how much your actual payments were after the credit that you got and that of course muddies up the waters if you're able to take a schedule A deduction oftentimes you might not have that problem because the people that are qualifying for the credit are usually low to moderate income people and possibly not itemizing but rather taking the standard deduction so you don't have that kind of conflict but possibly tip don't forget to include insurance premiums you pay for medical and dental care however if you include the self-employed health insurance deduction on schedule one form 1040 line 17 reduce the premiums by the amount on line 17 because you don't want to be double dipping again whose medical and dental expenses can you include so now you've got yourself but you could have multiple people on that tax returns you could be married could have dependence you can include medical and dental bills you paid in 2022 for anyone who was on the following following either when the services were provided or when you paid for them so yourself and your spouse that makes sense all dependents you claim on your return that makes sense so your child your child whom you don't claim as a dependent because of the rules for children of divorced or separate parents so now we've got the normal rule if you if they're on your tax return you got the social security on the tax return you're filing you would think that they would count but in some cases some people might still count even though they're not on your tax return this is one of them you can see the child divorce or separation parents in publication 502 for more information there any person you could have claimed as a dependent on your return except that person received four thousand four hundred so they're over the income threshold or more of gross income for or filed a joint return any person you could have claimed as a dependent except that you or your spouse if filing jointly can be claimed as a dependent on someone else's 2022 return example if you provided over half of your parents support but can't claim your parents as a dependent because they received wages of four thousand four hundred dollars in 2022 so they would have been a dependent but they cleared that fairly low income threshold that's the only reason they're not you can include online one any medical and dental expenses you paid in 2022 for your parent insurance premiums for certain non dependence you may have a medical or dental insurance policy that also covers an individual who isn't your dependent for example a non dependent child under age 27 so you can't deduct any premiums attributable to these individuals unless this individual is a person described under whose medical and dental expenses can you include earlier however if you had family coverage when you added this individual to your policy and your premiums don't increase you can enter online one the full amount of your medical and dental insurance premiums you could see publication 502 for more information there reimbursements if your insurance company paid the provider directly for part of your expenses and you paid only the amount that remained include online one include the amount that you paid so obviously if the insurance company basically paid for the expenses then it didn't come out of the pocket and you can only include the amounts that come out of the pocket now you might say but hey wait a second I'm paying for the insurance policy and that's true and you might be able to deduct the premiums on the insurance policy and you're paying for the premiums on the insurance policy so that it will cover you in the event of an emergency insurance it often covers you for normal kind of medical types of expenses as well so we've got two potential payments there the payment for the premiums itself and then the payment for the medical expenses that we are paying and we're paying for the medical expenses we can't include the expenses that were paid for through the insurance company that basically paid for those expenses as a general rule so if you received a reimbursement in 2022 for medical or dental expenses you paid in 2022 reduce your 2022 expenses by this amount so if they came out of your pocket you paid for the expenses but then the insurance company reimbursed it both of those things happened in 2022 then really you didn't really pay the full amount even though it came out of your pocket because you were reimbursed by it and you can only really include the amount then would make sense that you actually paid after the reimbursement so if you received a reimbursement in 2022 for prior year medical or dental expenses don't reduce your 2022 expenses by this amount so now we have the issue well what if I paid for the medical expenses like in 2021 and then they reimbursed me in 2022 this is a similar situation we saw with like the refunds for the state taxes so if you can deduct your state taxes on the federal tax return we said well if you got a benefit from the state taxes in the prior year and then the state gave you part of the money back they refunded it well now you got a benefit from an over payment and so what are you going to do are you going to go back to last year 2021 amend the entire return because you've got this refund or is there some way we can fix it in the current year similar kind of situation with this if you look back to 2021 and they itemized and they took the medical expenses and got a benefit from it and they took this deduction but then they got refunded part of the deduction or they got insurance payments first part of the deduction that came in 2022 well now the question is what do you have to do do you have to fix 2021 amending the return to adjust the amount that was deducted because they were reimbursed or you could you could basically hopefully be able to fix it going forward and not have to amend the prior return which means you'd have to include that reimbursement as income in that case because you couldn't deduct it because they happened in two different years so however if you deducted the expenses in the earlier year and the deduction reduced your tax you must include the reimbursement and income on schedule one form 1040 line 8z that's that other income miscellaneous line we talked about in the prior section and see publication 502 for details on how to figure the amount to include so cafeteria plan you can't deduct amounts that have already been excluded from your income so don't include online one insurance premiums paid by an employer sponsored health insurance plan unless the premiums are included in box one of your form W2 in other words most a lot of the times the health insurance might be in tied into your work and if you get a benefit from your work for putting money into the health insurance plan that doesn't have to be included in line one meaning it's already been deducted it's already been reduced from line one of your W2 then if you were to deduct it again on schedule a you'd be once again kind of double dipping because it's already been taken care of by the employer when they filled out the W2 and reduced it from box one of the W2 so it never really was included in income on the form 1040 so also don't include any other medical and dental expenses paid by the plan unless the amount paid it is included in box one so same thing for any other plans if it was reduced from box one of your W2 which you'll often see like it'll be in box 12 I think as well and you'll be able to kind of see the difference between you know box one and box five which is the Medicare expenses which will be partially explained by I think box 12 which might include your 401K plan and your medical any kind of medical stuff so there is that