With tax day around the corner, it’s time to gather those W-2s and financial statements in hopes that your return will equal a big check. Know what may help? Health-related tax deductions, which can add up for those who qualify.
While crunching the numbers may require some due diligence, such as sorting drugstore receipts, tallying mileage to doctor appointments and tracking down 2017 medical invoices, the payoff of reducing your taxable income may be worth the work.
Jeremy Schoettle, chief financial officer of UnitedHealthOne, has some suggestions to keep in mind during tax season.
Clock It: The IRS allows a tax reimbursement of 17 cents per mile for travel to and from medical appointments, so make sure your travel log is up to date.
Itemized vs. standard deductions: Is it really worthwhile to organize all those 2017 medical expenses? “Yes, you do want to capture and itemize your medical invoices, receipts, out-of-pockets and paperwork for the year; and it’s required in order to take advantage of the medical deduction established by the IRS,” Jeremy said.
In 2017, if you are itemizing deductions, you may deduct medical expenses once they exceed 7.5 percent of your adjusted gross income. For example, if your adjusted gross income is $50,000, the first $3,750 of medical expenses are not deductible, and neither are any expenses that you were reimbursed for or paid for with pre-tax dollars. Any non-reimbursed expenses beyond $3,750 would be deductible.
What can you deduct? As a general rule, procedures that are medically necessary are deductible while enhancements that doctors wouldn’t consider medically necessary, or are considered cosmetic, are not. What about health insurance premiums? According to Jeremy, it depends on your answer to this question, “Do you pay your health insurance premiums entirely on your own?” If the answer is yes, you can claim them as a deduction. If the answer is no or your health insurance premiums are paid on a pre-tax basis, you cannot claim them as a deduction.
Top off your HSA: If you have a Health Savings Account (HSA), Jeremy advises topping-off your pre-tax contribution. The maximum 2017 contribution is $3,400 for self-only coverage or $6,750 for family coverage, and if you’re over 55 you can stash away an additional $1,000 as a “catch-up” contribution. The deadline for contributing for 2017 is tax day: Tuesday, April 17, 2018.
“An HSA combines a qualified high-deductible health insurance plan with a tax-favored savings account, so reserved HSA dollars cover qualified medical and out-of-pocket expenses, including those that may not be covered by your health plan,” Jeremy said, citing hearing aids, acupuncture, dental treatments or LASIK eye surgery as examples of things you can pay for with HSA money in addition to your portion of the payment for covered procedures. “HSA dollars earn interest and you don’t lose the savings you’ve accumulated over time; your nest egg remains intact until you decide to draw on those funds.”
HSAs also have evolved into a handy record-keeping tool so you have the necessary documents on hand at tax time. “Some allow you to scan receipts and directly attach the expenses to your account, keeping documentation archived electronically,” Jeremy said.
How about 2018? If you have 2017 figured out, 2018 should be a snap – at least in theory. “There are no drastic changes to medical-related tax guidelines in the current year,” Jeremy said. “I do recommend, however, pre-planning. It’s great to think about your taxes and tax obligations year-round so you can make financial decisions that will impact your taxes and financial wellbeing this time next year.”
You have two extra days to complete your income taxes this year, with April 15 falling on a weekend, but don’t put off learning how to help save some money on health-related expenses.
Health savings accounts (HSAs) are individual accounts and are subject to eligibility and restrictions, including but not limited to restrictions on distributions for qualified medical expenses set forth in section 213(d) of the Internal Revenue Code. State taxes may apply. This communication is not intended as legal or tax advice. Please contact a competent legal or tax professional for personal advice on eligibility, tax treatment and restrictions. Federal and state laws and regulations are subject to change.