Here are six things the IRS wants you to know about medical and dental expenses and other benefits:
You may deduct only the amount by which your clients' total medical care expenses for the year exceed 7.5 percent of adjusted gross income. You do this calculation on Form 1040, Schedule A, in computing the amount deductible.
You can only include the medical expenses paid during the year. Any reimbursement must reduce total medical expenses for the year. It makes no difference if your client received the reimbursement or if it was paid directly to the doctor or hospital.
You may include qualified medical expenses your clients paid for the filer, spouse, and dependents, including a person claimed as a dependent under a multiple support agreement. Suppose either parent claims a child as a dependent under the rules for divorced or separated parents. In that case, each parent may deduct the medical expenses he or she pays for the child. You can also deduct medical expenses paid for someone who would have qualified as your clients' dependent, except that the person did not meet the gross income or joint return test.
A deduction is allowed only for expenses primarily 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. The cost of drugs is deductible only for drugs that require a prescription, except for insulin.
You may deduct transportation costs primarily for and essential to medical care that qualifies as medical expenses. The fare for a taxi, bus, train, or ambulance may be deducted. If your clients used a 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.
Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax-free if your clients pay qualified medical expenses.
For additional information on medical deductions and benefits, see Publication 502, Medical and Dental Expenses, or Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
This information applies to all years of the UltimateTax software.
Health Savings Accounts