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Thursday, February 10, 2011

Taxes and Medical Expenses

Considering how much I paid out in dental bills last year (two root canals!), I'm hoping that I can deduct at least some of my medical bills.    Here's a first pass look at whether or not it's worth dragging out all those receipts. 

1)  I can deduct anything above 7.5% of my AGI.  Last year's AGI hovered around $50,000 -- so I'll only be able to deduct expenses above $3,500 or so...probably closer to $4,000, since I got a raise last year. 

So...2) Expenses paid out of my Flexible Savings Account for Health costs = $100 * 26.....Wait a minute...Nope!  Page 142 of IRS publication 17 points out that I can't deduct these costs because I paid for them with contributions made on a pre-tax basis.  I guess the same thing goes for my health insurance premiums and my dental insurance premiums, since I pay for them on a pre-tax basis as well.  

Note:  If the amount is listed in Box 1of your Form W-2, you might want to ask your employer if the premiums were deducted pre-tax.  If they are in Box 1 of Form W-2, then they may not have been.

3) I know I had at least $750 in fees, because that's my deductible.  If I paid for anything toward my daughter's (dependent) costs, that would be covered as well.    Time to go digging those receipts out!

Here's a recap of the medical expenses tax table (on page 142) from the IRS publication 17.

More Tax Fun!

Common Tax Goofs
How Long to Keep Tax Records