In certain circumstances it is possible to deduct healthcare expenses. In general, medical expenses that are in excess of 7.5% of your adjusted gross income qualify as an itemized deduction on schedule A of your tax return. At this point in time this percentage will increase in 2013 to 10%. The following are examples of commonly accepted deductions:
- Health and dental insurance costs.
- Medical services from dentists, surgeons, and physicians.
- Prescribed medications.
- Medical devices, for example: glasses.
- Long term care insurance
- Transportation for traveling to health care facilities including mileage for driving to and from appointments
There are a number of other options when you are planning financially for medical expenses that provide tax efficient solutions, including Health Savings Accounts. Although this option does not allow payment of the actual insurance premium, other medical expenses can be excluded from your gross income therefore reducing the tax impact. If you do not meet the 7.5% noted above, it may be helpful to consider more detailed planning for your medical expenses outside of the insurance premiums.
Health Savings Accounts (HSA) have a number of benefits to the participant. First off, to be eligible for an HSA you must be covered under a high deductible health plan, cannot be enrolled in Medicare, and cannot be claimed as a dependent on another individual’s tax return. A high deductible health plan for 2012 is defined by the ranges below:
- Single minimum deductible: $1,200
- Single maximum out of pocket : $6,050
- Family minimum deductible : $2,400
- Family maximum out of pocket: $12,100
HSA contributions are excluded from gross income and withdrawals for qualified medical expenses are tax free. This feature essentially functions as a tax credit, thereby reducing your overall tax payment. 2012 contribution limits are noted below:
- Single contribution limit: $3,100 / over age 55 additional contribution $1,000
- Family contributions limit: $6,250 / over age 55 additional contribution $1,000
This account can be administered through an employer or outside of the workplace. While this eliminates some of the convenience of a salary reduction agreement, it allows more flexibility throughout the year. Health Savings Accounts may permit the funds to be invested in a specific selection of mutual funds and ETFs, any earnings are tax free when used for qualified medical expenses. In addition, HSA’s do not have the “use it or lose it” feature, you can accumulate funds in an HSA and use them as needed for qualified medical expenses.
Another option to consider if working for a non-profit, would be working as a consultant so that your income is considered self employed income. This would have to be set up correctly with the non-profit, however, generally in this case 100% of your insurance premiums would be deductible given a few details are met. You must have a net profit for the year reported on schedule C of form 1040 and were not eligible to participate in any employer sponsored health plan, under yourself, a spouse, or any other dependent. In addition this deduction cannot exceed the amount of earned income collected.
When planning for medical expenses a number of options are available, however, encompass incredible detail. Be sure to consult a financial professional to ensure all guidelines are followed appropriately.
** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.
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