 Income tax 2023-2024. Medical and dental expenses. Get ready, some coffee, and stay calm because as a taxpayer, you really don't have much more to lose. Most of this information can be found in the instructions for Schedule A Tax Year 2023, which you can find on the IRS website at irs.gov, irs.gov. Looking at the income tax formula, focused on what I would call the below the line deductions, more specifically on the itemized deductions. Remembering that the income tax formula is basically a funny income statement. Income statements typically having income minus expenses resulting in net income. Here having income minus various deductions resulting in taxable income. Noting that for taxes deductions are good therefore we're always looking for more of them. The major two categories of deductions being the adjustments to income or above the line deductions and the below the line deductions, the greater of either standard deduction or itemized deductions. Remembering that the above the line deductions are possibly less common, less familiar, but quite important if they qualify for an above the line deduction or adjustment to income because there's no hurdle that have to be cleared as is the case with the itemized deductions. With the itemized deductions we would only generally be taking them if they add up to a dollar amount that is greater than the standard deduction, the standard deduction being based in part on filing status such as single versus married versus head of household and so on. This is the first page of the form 1040. We are focused down online number 12 where we have the standard deduction or itemized deductions. You can see the standard deduction amounts on the left hand side based on filing status. This is the schedule A where the itemized deductions will be reported if you will be itemizing. First a word from our sponsor. Yeah actually we're sponsoring ourselves on this one because apparently the merchandisers they don't want to be seen with us but that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our trust me I'm an accountant product line. Yeah it's paramount that you let people know that you're an accountant because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions. If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. The categories on the left hand side this is not the full page and this is a bigger glimpse of some of those standard deductions which are generally based on filing status. Single 13,850 married filing joint double that 27,700 head of household 20,800 and then if over age limit and blind you also have these increases in the standard deduction per the filing status. Given that we're now focused on medical and dental expenses. Now just to start off here note the major thing that will often be pushing people over from taking the standard to itemized deduction is not usually medical and dental although it could be if those expenses happen to be substantial for any reason. However usually the thing that pushes people over is the home ownership which could have a significant amount of mortgage interest as well as property taxes. So then if someone is already itemizing then often the question comes in do they qualify for medical and dental expenses which could increase that level of itemization. Now also note the medical and dental is funny because it will have limitations in terms of low income individuals who might not be able to take it because they're not might not be itemizing and some of their medical expenses might be covered by other programs possibly covered by a credits and so on which could complicate things further. High income people who might be itemizing may also not be taking the medical expenses because their incomes too high and the medical expenses also have a floor of the 7.5%. So it's kind of a weird itemized deduction in that case you have that kind of in between area as to when they're going to be deductible medical expenses. So you can deduct only the part of your medical and dental expenses that exceeds 7.5% of the amount of your adjusted gross income on form 1040 or 1040 SR. So we have whenever we think about expenses usually we see a phase out kind of situation meaning you know as income goes up then the amount that we can deduct goes down. Here we have a floor type of situation in that your medical expenses have to be greater than 7.5% of your adjusted gross income before you can take them as an itemized deduction. And of course your itemized deductions have to be greater than the standard deduction in order to get the benefit as well. Caution if you received a distribution from a health savings account or a medical savings account in 2023 see publication 969 to figure your deduction. Now note when we have these different kind of vehicles that are going to be impacting or could have multiple impacts on the tax return multiple benefits. You might get into a situation where you're kind of like double dipping. In other words you might have also already got a benefit from the putting the money into this account a health savings account. So then the question is given the fact that you already got a tax benefit from that could you also include it as a deductible item on schedule A. So for more detail on that you could take a look at publication 969 which you can find on the IRS website. Deceased taxpayer certain medical expenses paid out of a deceased taxpayers estate can be claimed on the deceased taxpayers final return see publication 502 for details. Now when someone passes away that's going to lead to other complications because of course in the year of death they still have to file their final tax return. So death doesn't avoid taxes to things certain in life death and taxes and when you die that iris might come after you for more than when you were alive in any case. Then then the question is if they have an estate what happens is an estate tax is going to be piling the money together for the person that died to see whether or not they have to pay basically a tax on that income which would be a death tax or an estate tax. And then the question is going to be could you know word to the deductions and income lie in the year of death is it going to be part of like the estate that you're going to have on that level or is it going to be on the final tax return. So that gets in a little kind of more of a specialized area when you get into that the estate planning type of situation. More information publication 502 discusses the type of expenses you can and can't deduct it also explains when you can deduct capital expenses and special care expenses for disabled persons. Okay examples of medical and dental payments you can include in calculating your total medical expenses. So clearly once we get into the realm of saying is it worthwhile to have our medical expenses that we're going to be calculating because the general idea would be if they're not itemizing and we have no we're not even close to itemizing. Then it might be the case that we don't have enough medical expenses that are going to push us over because the main thing that pushes people over usually isn't medical expenses but rather the ownership of a home. And so if it's not worth us basically adding those up it might not be worthwhile but if we have a significant medical situation in one year versus the prior year it might be of course worth checking out. And if we did itemize and we are itemizing then of course it might be worthwhile to be adding up our medical expenses to make sure that we're getting our maximum benefit. Once we start thinking about what kind of medical expenses qualify you can imagine people getting quite creative and they have gotten quite creative in the past and you can get into the weeds in this area. And this is one of those areas where you could look at the law and say there's not enough definition in some areas and then you might have even have to go down to court cases and revenue rulings and what not. Because you can imagine a doctor saying that basically anything is deductible. You can get a doctor to say anything after after COVID and watching Fauci out there calling himself science incarnate and whatnot. You start to lose faith that they're actually following the science right so I mean like if a doctor said you could deduct a vacation to Hawaii for medical expenses is that going to be deductible. You know you could you could probably say no that's not going to be deductible but those of it if I bought a jacuzzi or a sauna for my home is that going to be deductible because my doctor said it was going to be something. You can imagine all kinds of these kind of scenarios that are somewhat in the gray area and and then you might have to get into more detail about them but certain things are not in the gray area and are pretty straightforward. So to the extent you weren't reimbursed in calculating your total medical expenses you can include what you paid for. Now obviously if you were reimbursed for the medical expenses then you didn't actually pay them and you would think then that they would not be something that would be deductible. 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. Reduce the insurance premiums by any self employed health insurance deduction you claim on schedule one. So obviously the big cost for many people is the insurance and so can we deduct the insurance. Now if you can deduct the insurance sometimes you end up with this double dipping kind of problem. And this is another kind of issue that comes up in part because we're kind of veering away from that standard thing that you would think would naturally be deductible if you have an income tax system. In other words normally if you have an income tax system you're going to deduct the things that you needed to expend in order to generate the revenue. As we see kind of for example on a schedule C where we deduct the expenses that we needed to generate the revenue. All the stuff on the schedule A such as medical expenses notice that's personal. We didn't we didn't it's not part of a business expense generally for medical expenses. So when we deduct the medical expenses it's kind of the rationale is something like we want to incentivize people to take care of themselves or nudge people to do this or that. And you end up running into situations oftentimes where the tax code has come up with multiple areas where you might be able to deduct something. So it used to be that insurance was tied to employment right. So it might be something that was deduct that was was done through your place of employment as an employee for a sole proprietor. Then it might be possible for you to deduct the insurance possibly not on a schedule C but rather on the schedule one. And if you can deduct the insurance there you can't also deduct it you would think on the schedule A because that would be what we would call like double dipping to deductions for the same cost in that case. So there's that that would come up if someone was possibly self employed for example and that was their primary income and they weren't receiving health insurance through a W to employee for example. So you can't include insurance premiums paid by making a pre tax reduction to your employee compensation because these amounts are already excluded from your income by not being included. Box one of forms W to. So if you're a W to employee and you get insured through your employer and it's something that is not then taxable. It will already have been taken care of you've already got a tax benefit because the employer will have reduced box one of the W to form which is your income line. And therefore it's already been taken care of and because the box one will be reduced box one of your income line might therefore be different than box three and five of your W to which are all wages depending on whether it be subject to social security and Medicare tax. So you have to be careful of that. Was it already excluded from income on the W to if so then if you deducted it again you would basically be double dipping. If you are a retired public safety officer you can't include any premiums you paid to the extent they were paid for with a tax free distribution from your retirement plan. Prescription medicines or insulin. So there's the other big one you've got the prescription medications that might be a deductible item clearly which you might have to basically keep track of of course to see how much was paid for those items. Then we have acupuncturists chiropractors dentists eye doctors medical doctors occupational therapist osteoporothic doctors of physical therapists pediatrists psychiatrists psychoanalysis. So notice many of these categories like for example acupuncturists and chiropractors were somewhat new into the field. So so there have been questions in the past in terms of how broad a range of professionals would would be qualified in this area. And again this comes up this ends up making a whole issue because now it becomes important to define certain things as medical care and it also could be important to define certain things as diseases and whatnot. Not because that would be the best definition possibly of certain things but because there's tax consequences related to it which again to me is kind of a detrimental outcome because again I don't want things to be defined by whether it be best for deductibility on a tax code and whatnot. I'd rather it be defined on other objective matters but in a case medical examinations x-ray and laboratory services and insulin treatment for for doctor ordered diagnostic tests such as full body scan pregnancy test or blood sugar test kit. Nursing help including your share of the employment tax paid. If you paid someone to do both nursing and housework you can deduct only the cost of the nursing help. So if they're doing you know the nursing work then you might be paying them directly and they're also doing housekeeper work. Obviously the housekeeper is personal information and the medical is also personal but possibly deductible because of the schedule a deduction. Hospital care including meals and lodging clinic costs and lab fees qualified long term care services which you can see publication 5024 the supplemental part of medical insurance Medicare Part B and then the premiums you pay for Medicare Part D insurance a program to stop smoking and for prescription medicines to alleviate nicotine withdrawal again this is another one that's kind of on those fringe cases we deducting this kind of stuff which is like is that really I'm not sure that's kind of like a habit like a disease is a disease addiction disease is obesity a disease or is it you know should it be categorized I don't know. So a weight loss program as treatment for a specific disease including obesity. So here's the one where they included obesity as a disease. Is that a good thing to do if they did it just for taxes because if you tell someone they have a disease that could make their mental state a little bit different than telling them that they have a condition that that is that you know they have more control over maybe if it's not categorized as a disease. 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. I want a dog I don't think it could. Well if searching to improve defective vision surgery to improve defective vision such as laser eye surgery and our radio correct and I said I need that laser eye surgery. You can get that lodging expenses but not meals while away from home to receive medical care provided by a physician and a hospital or a medical care facility related to a hospital provided there was no significant element of personal pleasure recreation or vacation in the travel. So obviously you have these travel costs that if you needed that if it qualifies you had to go somewhere in order to get specialized care for medicine and so on. But it happened to be next to Disney World so you went in there and and and now so you got to think is it personal or is it business and obviously whenever those two things in this case not business but possibly deductible is it medically related or non medically personally related. And if it's non medically personal related then you have to separate that out in some way shape or form you would think because that part wouldn't be deductible. But you could probably get some doctor to tell you that it was a medical necessity to go to Disney World or whatever and so on as long as you had your mask on. Fouchy be OK with it. So anyway don't deduct more than $50 a night for each person who meets the requirements of publication 502 under lodging. So ambulance service another travel cost to get medical care if you use your own car you can include what you spent for gas and oil to go to and from the place you receive and care receive the care or you can use the 22 cent a mile. Now remember that when we use these mileage rates that the rates are not all the same depending on what you did. So there might be a different mileage rate that you're going to be calculating for medical driving versus a schedule C type of business if you had the business use of your car in that since situation or for charitable expenses for example. So add parking and tools to the amount you claim under either method cost of breast pumps and supplies that assist lactation. So personal protective equipment such as masks hand sanitizer and sanitizing wipes of the obviously they I think they added all that because the COVID thing was a big win. The administration came out and said we are allowing a deductibility of your hand wipes. The problem is solved vote for reelect us based on our that track record of doing that that's going to save that's going to save million. That's anyway for the primary purpose of preventing the spread of coronavirus limit on long term care premiums you can include. So note that when we're looking at insurance the whole insurance landscape gets a little bit complex because clearly we have like the normal insurance. But and then when you get over a certain age you might be in Medicare situation because Medicare is kind of become like instead of it being like a like a benefit program for people that need it or something. Kind of like everybody's insurance over a certain age. So that transition gets a little bit weird and then we have the long term insurance which is is in essence generally different than what we think about as our normal insurance long term care. Typically being something that my understanding something that you're going to need in the event that you can't do the basic care of yourself people helping. You know you need daily care to feed yourself and go you know do day to day just normal kind of activities and so insurance for that which is a little bit different than the normal kind of insurance. So the amount you can include for qualified long term care insurance can contacts as defined in publication 502 depends on the age at the end of 2023 of the person for whom the premiums were paid. See the following chart for details. So here's our chart. If the person was at was at the end of 2023 age 40 or under then the most you can include is 480 but if they're 41 to 50 you can include 890 51 to 60. One thousand seven ninety sixty one to seventy four thousand seven seventy and seventy one older five thousand nine hundred and sixty. Now you would think the general idea of this is if you're younger you're probably the and you look at the actuarial tables. The likelihood of somebody needing long term care care for basic day to day kind of needs and like a facility to help someone out for them day to day stuff is low. Right. And then but then as you get older then you would think the likelihood of that of needing that kind of care is going to go is going to go up right. That would be the general thought process. So examples of medical and dental payments you can't include. So the cost of diet food. So here's where we get into the weeds because again you can imagine people coming up with all kinds of things that they can they can say well my doctor approves this and you can imagine the back and forth that has happened between you know taxpayers and the IRS. So what the first one diet food. This gets into that whole thing with should obesity for example be a disease because if if he qualified as a disease maybe you can write off the food that you buy right which would be a huge expense or of a right of which again I don't think should really be something that's dependent on the tax code to be determining the classification of a disease personally. Cosmetic surgery unless it was necessary to improve a deformity related to a congenital abnormality and injury from an accident or trauma or a disfiguring disease. So again this is another one that gets kind of confusing because you know sometimes you know you can argue as to whether or not something is is necessary care or or not whether it be cosmetic or or not kind of things and again there's a lot of kind of great area. It seems to me in that space as well life insurance or income protection policies. So life insurance is different than medical insurance. Then we have the medic 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 we think about our normal our normal payroll taxes the money that that's taking out of our W2 wages we have federal income tax we have social security in Medicare and you could argue couldn't say why well Medicare is something that I'm going to get when I get when I reached the age limit to be I'm basically paying for it now so I should get the deduction for Medicare but no because that's some weird thing where it's like you're paying into the social program and so on and and again it gets kind of messy. So nursing care for a healthy baby but you may be able to take a credit for the amount you paid see the instructions for form 2441 illegal operations or drugs. So obviously if you're if you're getting your drugs like illegally or something like that like like from Canada or some other place you know you would think that that might not be deductible obviously illegal drugs are generally not going to be deductible you would think So important drugs not approved by the U.S. Food and Drug Administration the FDA so imported drugs these include foreign made versions of U.S. approved drugs manufactured without FDA approval which means they're cheaper oftentimes because they don't have the FDA approval But of course can't deduct them in that case non prescription medicines other than insulin including nicotine gum and certain nicotine patches so travel your doctor told you to take for rest or a change. So this is one that I gave as an example that you can see would commonly come up with you can convince any doctor you know I need a vacation to reduce my stress and it's going to be a health benefit. Well you could get approval for that but obviously that's one that the argument has been pretty well drawn out and the IRS is basically one you know that argument. But again if you get create if you start thinking about it you can come up with all kinds of questions about medical expenses and so on and and I'm sure you could find many interesting cases about the deductibility of medical expenses. So funeral burial or cremation costs so that is past medical expenses because the medical expenses had clearly failed at that point in time so tip. So if 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 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. You can see reimbursements later if the advance payments of the premium tax credit were made or you think you may be eligible to claim a premium tax credit fill out form eight nine six two before filling out schedule a line one. So the premium tax credit as we'll talk about when we get to the credits means that it's usually for lower income individuals usually that have a high deductible health insurance plan and you might get a credit which is basically designed to pay for part of the health insurance with the credit which means that you would think that you wouldn't get a deduction for the part of the health insurance that was reduced by the credit because again that would be kind of like double dipping you would think. So see publication five or two for how to figure your medical and dental expenses deduction. Now notice if you qualify for that credit it's likely that you're a low income taxpayer and therefore aren't itemizing unless you have significant medical expenses or something like that because your itemized deductions would be below the standard deduction threshold tip. Don't forget to include insurance premiums you paid for medical and dental care. However, if you claim the self employed health insurance deduction on schedule one form 1040 line 17 reduced the premiums by the amount on line 17 which we have discussed before. So who's medical and dental expenses can you include. So now you've got a family and whatnot instead of just one person here is not just me sitting here. Who's can I include. So you can include medical and dental bills you paid in 2023 for anyone who was one of the 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 your child whom you don't claim as a dependent because of the rules for children of divorce or separate parents. So this is where we get into the weeds when we have the separate parents and so on and so forth. So if you have that that separation thing the question you come up with the same questions we came up with when we saw the claiming of the dependence the child tax credit or other dependent credit as well as possibly with the filing statuses between single versus head of household possibly being dependent in part on whether you have a dependent. So see child of divorce or separate parents in publication 502 for more information. Any person you could have claimed as a dependent on your return except that that person received $4700 or more of gross income or filed a joint return. So that's usually going to be the income threshold that was the only thing that restricted you from filing as dependent. Any person you could have claimed as a dependent except that you or your spouse if filing joint can be claimed as a dependent on someone else's 2023 return example. So you provided over half of your parents support but can't claim your parent as a dependent because they received wages of $4700 in 2023. You can include online one any medical and dental expenses you paid in 2023 for your parent. Insurance premiums for certain non dependents 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 that's going to be confusing because now I'd like to deduct my insurance premiums but possibly I have someone on the insurance premiums that I'm being paid in a group premium payment that might not be like deductible. So how am I going to figure out which part of the premium is deductible. So you can't deduct any premiums attributable to this individual unless this individual is a person described under whose medical and dental expenses you include earlier. So however if you had family coverage when you added this individual to your policy and your premiums didn't increase you can enter online one the full amount of your medical and dental insurance premiums. So you had the premiums before and then you added this person because it was family coverage and that person didn't cause the premiums to rise even though you can't deduct the medical expenses for that person because they don't qualify. But including them in didn't increase the premiums which means that you would have paid the same amount either way so therefore you would think it'd be reasonable to still be able to deduct the same premium amount. So see publication 502 for more information reimbursements if your insurance company paid the provider directly for part of your expenses and you paid only an amount that remained include online one only of the amount you paid. If you received a reimbursement in 2023 for medical and dental expenses you paid in 2023 reduce your 2023 expenses by this amount. So you paid the amount they gave it back to you in the same year. Well clearly you didn't actually pay that amount you knew about it before filing the tax return which wouldn't happen until April 15 of 2024 or so. And therefore obviously you could account for that. However if you received a reimbursement in 2023 for prior year medical and dental expenses didn't don't reduce your 2023 expenses by this amount. However if you reduce the expenses in the earlier year and the deduction reduce your tax you must include the reimbursement income in schedule one. So this is where the funny possible problem could happen. You got a reimbursement in 2023 of the premiums that you paid in the prior year. Now if you paid the premiums in the prior year then you possibly could have got a deduction for them. You didn't get a deduction for them possibly because you weren't itemizing or because you didn't qualify for the medical expenses part of the itemizing. Then you don't have to include the reimbursement and income in the current year. But what if you did get a deduction for last year for these expenses and then you got a reimbursement. Do I have to go back and amend the prior year tax return to fix it because I actually got that reimbursed. If it was more difficult know the easier thing to do would be to fix it in the current year by including it in income. This is a similar situation as we saw with state taxes. You get a state tax refund. You deducted it last year possibly or if you deducted it on the schedule A and got a benefit from it you might have to include it in income in the current year. So you can see publication 502 for details on how to figure the amount to include cafeteria plans. You deduct amounts that have already been excluded from your income. So don't include on line one insurance premiums paid by an employer sponsored health insurance plan cafeteria plan unless the premiums are included in box one of your forms W2. So if someone is having their health insurance through their employer and it's being paid then was it already reduced from their income in line one. If it was then you can't also deduct it because that would be a double dipping situation. Also don't include any other medical and dental expenses paid by the plan unless the amount paid is included in box one of forms W2. Meaning it has to be something that was included basically in income and part of the plan in order for you to deduct it. If they already reduced your income then that would be that they already basically gave you the deduction by not reporting it in income rather than putting it in income and then taking the deduction which by the way is better if you can get that situation because it's likely that most people won't be able to deduct it as an itemized deduction on schedule A either because they're not itemizing because they don't have deductions over the standard deduction or because of that 7.5% the limitation that they have to clear the floor of the adjusted gross income.