Do you think it was difficult to qualify for medical expense deductions in the past? It’s harder than ever due to new rules taking effect on 2013 returns.
Strategy: Leave no stone unturned to find deductible expenses. If you take the time to conduct a thorough search of your records, you may be pleasantly surprised.
At least medical expense deductions aren’t reduced for higher-income taxpayers under the Pease rule.
Here’s the whole story: Beginning with your 2013 return, medical expenses are generally deductible only to the extent the annual total exceeds 10% of your adjusted gross income (AGI). Previously, the limit was 7.5% of AGI.
For example, if you have an annual $100,000 AGI and $9,500 of unreimbursed medical expenses in 2013, you can’t deduct any expenses. The total doesn’t exceed 10% of your AGI, or $10,000. Before this year, you could have deducted $2,000 in medical expenses [$9,500 – (7.5% of $100,000)].
Make sure you fully understand the rules. Qualified expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body. This includes health insurance premiums and a portion of premiums paid for long-term care insurance policies, based on the insured’s age. Other commonly deductible expenses include:
- Visits to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and other medical practitioners
- Inpatient hospital care or nursing home services, including the cost of meals and lodging charged by the hospital or nursing home
- Acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction, participation in a smoking-cessation program and drugs to alleviate nicotine withdrawal if they require a prescription
- A weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician (but usually not for health food items or payment of health club dues for general health)
- Insulin and prescription drugs
- False teeth, reading or prescription eyeglasses or contact lenses, hearing aids, crutches, wheelchairs, and for guide dogs for the blind or deaf
- Transportation to obtain necessary medical treatment such as fares for taxis, buses, trains and ambulances. If you use your vehicle, you can deduct the actual costs or a standard rate (24 cents per mile in 2013).
However, you can’t write off costs of over-the-counter medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, most cosmetic surgery, nicotine gum and nicotine patches requiring a prescription.
Tip: The deduction threshold remains at 7.5% of AGI through 2016 for taxpayers age 65 or older.
Embrace tax rewards of foster parents
If you take in a child under a foster care arrangement, the payments you receive from the government or other qualified agency are generally tax-free. But the tax breaks don’t stop there for generous foster parents.
Strategy: Claim the same tax benefits available for supporting a natural child. For instance, if a foster child lives with you for more than half the year, you’re entitled to an extra dependency exemption if you meet the other tax law tests. Each exemption for 2013 is $3,900 (increasing to $3,950 in 2014).
Similarly, you may be in line for one or more of these tax benefits on your 2013 return.
- The dependent care credit for children under age 13
- The earned income credit
- The child tax credit
- Medical expense deductions paid on behalf of the child subject to the usual 10%-of-AGI threshold (see above).
Tip: You can also claim a charitable deduction for your out-of-pocket expenditures for feeding, clothing and caring for a foster child if this benefits a qualified tax-exempt organization.
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