But what can you deduct? What amount of your medical expenses are tax deductible? Do you have to show proof of the expenses that you’re claiming as deductions? Whose medical bills are able to be deducted?

These are some very common questions about medical expenses, so let’s just dive right in.

You Can Deduct Medical Expenses

More than a few people are surprised to learn that a portion of the cost of their medical and dental expenses can be subtracted, or deducted, from their adjusted gross income. However, on your 2012 taxes, only medical and dental expenses that meet the government’s minimum required amount, which is anything above 7 ½ percent of your adjusted gross income (AGI), are eligible.

In other words, if you’re medical expenses aren’t equal to or greater than 7 and a half percent of your income, you can’t claim them as tax deductions.

Of course, these expenses can only be deducted from your income if you itemize your tax deductions instead of taking the standard deduction.

Whose Expenses Can Be Deducted?

Whether you’re a first-timer in the medical deductions arena or a seasoned veteran, it’s important to know exactly whose medical expenses can be deducted from your income.

Although almost everyone’s life (and therefore tax) situation is unique, you can somewhat generalize the rules about medical and dental deductions. Here’s the low-down: you can deduct your medical and dental expenses, those of your spouse, or the expenses of your dependent’s – if you choose to itemize.

If you’re not sure about itemizing your deductions, TurboTax will figure out which choice benefits you best – itemize or take the standard deduction.

Exactly Which Medical and Dental Expenses Can I Deduct?

The government has an enormous list of qualifying medical and dental expenses that they have ruled as eligible for deduction on your income taxes. For a full list of every piece of information dealing with deductible medical expenses, see IRS Publication 502.

For time’s sake, here are a few of the most common expenses (and some commonly overlooked expenses) that are deductible.

• Diagnosis and Cures
• Annual Physical Exams
• Medicine, Treatment and Prevention
• Dental Treatments
• Medical Equipment, Supplies and Diagnosis Devices
• Ambulance and Other Medical Professional Transportation
• Travel expenses to and from treatment
• Insurance payments
• Chiropractor
• Psychologist
• Physical Therapy

Medical Expenses that Aren’t Deductible

The IRS updates the list of medical expense deductions quite frequently, from a tax perspective, so it’s important to know not only what is considered deductible, but what isn’t.

A few expenses that may be medical-related but aren’t as of yet deductible, according to Uncle Sam, are:

• Elective cosmetic surgery
• Medicine that isn’t FDA approved
• Expenses related to a funeral
• Medicare tax payments (for the self-employment tax)

What do you call it when a blogger sits down to write a post titled, “Shedding Holiday Pounds” alongside a big bag of tortilla chips?

On second thought, don’t answer that.

I’ll ask you another question instead:  What do you call it when you learn of a financial incentive to do something you kind of know you ought to be doing anyway?

Exactly – a no-brainer.

Shedding Pounds

If you need to lose weight, many of your expenses helping you to do so may be tax deductible. But, since it’s taxes we’re talking about, it’s not as simple as, “Deduct all of your weight loss expenses.”  There are a few hurdles you have to overcome to reduce your tax burden.

Key Requirements to Deduct Weight Loss Expenses

Remember when you needed a doctor’s note to get away with something?  Same deal for the weight loss tax deduction.  In order for the tax deduction to be available for you, losing weight is something the doctor has to tell you need to do.  Your doc needs a good reason, too. He or she can’t just provide you a generalized recommendation along the lines of a reminder to wear your seat belt.  Instead, your doctor must recommend, in writing, that you lose weight to help something critical to your health. Once you have the note, you’re on the way to a medical expense deduction.

What Weight Loss Expenses Are Deductible?

Let’s get the fun stuff out of the way first. Gym memberships, healthy food, and a treadmill are not deductible expenses.  Neither are vitamins or herbal supplements.  On the other hand, you may deduct meetings with a nutritionist, other related doctor’s appointments, the cost of weight loss programs, prescription weight loss drugs, and even the cost of gastric bypass surgery as long as the expenses are related to the diagnosis, cure, mitigation, treatment, or prevention of disease.

What Else Should You Consider?

Qualifying weight loss costs are deductible as medical expenses.  Due to their nature, such expenses are therefore  tax deductible to the extent that all of them exceed 7.5% of your adjusted gross income and you itemize your tax deductions.  After December 31, 2012 your expenses will need to exceed your adjusted gross income by 10%.  If you’re not sure if you can itemize, TurboTax will ask you simple questions and determine if you are eligible.   If you won’t be able to itemize, consider using your workplace flexible spending account to save on your weight loss expenses.

Flexible Spending Accounts

That pre-tax contribution is a big benefit, since your contributions are not subject to income taxes or payroll taxes. So if you contribute $5,000, that may translate to savings of $1,500 or more in taxes each year.

The major drawback? Here’s a hint: The plan’s motto should be “Use it or lose it.” Any portion that you don’t spend by year end on specified expenses is forfeited. And if you are laid off, you not only lose your job, you can lose your unspent contributions as well.

To counter part of that drawback, since 2005 employers have been authorized to add a grace period to their plans, giving employees until March 15 of the following year to spend their flex-spend contributions. And once over-the-counter medications were added to the list of eligible expenditures in 2003, employees who still had a balance in their account could stock up before the grace period expired.

Kiss that benefit bye-bye. Beginning in 2011, over-the-counter medications can’t be reimbursed from a flex-spend account. So don’t count on cleaning out your account at the end of this year by stocking up on cold and allergy medications, vitamins, sunscreen and aspirin. But pssst, here’s a little secret. There are several exceptions to this rule:

• If you have a doctor’s prescription, the medication is eligible for reimbursement even if it is over-the-counter. So ask your doctor for formal documentation for any over-the-counter medicine he or she recommends. Your doctor may object because it’s more paperwork, but it will save you money, so push for the prescription anyway.
• Insulin is covered, even if it is purchased without a prescription.
• Also covered are other expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles.

Okay, you say, I can live with those changes, as long as I get to enjoy that big fat $5,000 a year pre-tax benefit. Oh, sorry, here’s some more bad news: beginning in 2013 your annual contribution limit will be $2,500, only half of the amount allowed by most employer plans currently. To ease your pain a bit, this cap will be adjusted annually for inflation.

Why are they doing this to us? These changes are part of the new health law legislation that is phasing in over the next few years. Congress felt that employees wouldn’t need flex-spending accounts once health care coverage was more affordable and comprehensive. And besides, limiting the tax break helps the government muster the revenue it needs to finance the health care overhaul.

Most employees don’t take full advantage of flex-spend accounts, and the average contribution is only $1,400 or so. But if you contribute more heavily, you will definitely be affected by the upcoming change in contribution limits. With the new $2,500 maximum contribution limit coming up, consider scheduling any big medical procedures for the upcoming year, such as Lasik eye surgery, elective dental work or braces. That way, a big chunk of those expenses can be paid with pre-tax money.

Medical Expenses

Whose Medical Expenses Can You Deduct?

Generally speaking you can deduct your medical expenses, your spouse’s expenses, or your dependent’s (such as a qualifying child or relative) if you itemize your tax deductions.

What Medical Expenses Can I Deduct?

Please keep in mind that you can only claim the amount of your medical expenses that exceeds 7.5% of your adjusted gross income. Let’s say your AGI is $35,000. If your medical expenses for the year were $2,700 then you can deduct your expenses that were greater than 7.5% of your adjusted gross income. However, if your medical and dental expenses were only $1,750 then you could not claim any, as they didn’t meet the requirement.

The IRS has a huge list of medical expenses that you can deduct. Some common ones I think many people use include:

• Ambulance/Transportation
• Annual Physical Exam
• Breastpump
• Chiropractor
• Dental Treatment
• Insurance Premiums
• Medicine
• Psychologist

For the entire list and detailed explanations, please check out our Medical Expense Checklist. I think most people will be able to find qualifying medical expenses they’ve had this past year. Please note that you can only deduct expenses that you’ve paid to treat, alleviate, or prevent a physical or mental illness.

My Family’s Medical Expenses This Year

After reviewing the IRS list of eligible expenses, I saw that my family has some medical expenses we can deduct. They include:

• Breastpump: We just had our baby girl this year and I’m breastfeeding so the pump has become handy.
• Contact Lens/Eyeglasses: I have both contacts and eyeglasses for my nearsightedness. Glad to see I can get a tax deduction for them.
• Some Medical Insurance Premiums:  Only the ones that are not a pre-tax deduction from my income.
  
• Laboratory Expenses: The blood-work I had done while I was pregnant is an eligible medical expense.
• Medicines: The medicine my doctors prescribed are included.
• Physical Examinations: I get my checkups annually to make sure everything is in check.

I’m really happy to see that we have medical expenses that are on the tax deductible list. Maybe we’ll get a good size tax refund; we’ll see.

Thoughts on Medical Expenses

What medical expenses are you going to deduct when you file your taxes? What has been the biggest expense? What expense surprised you?

You can deduct only those medical expenses that exceed 7.5% of your adjusted gross income. Many taxpayers don’t benefit from the deduction because their expenses don’t exceed that threshold.

To see if your medical expenses add up, go through your checkbook, bank statements and credit card statements to see what you paid last year.

Don’t forget to include these often overlooked medical expenses:

• Travel costs to and from doctors, medical treatments, and hospitals. For 2010 the mileage rate deduction is 16.5 cents a mile, and for 2011 it increases to 19 cents.

• Long-term care insurance premiums on qualified policies.

• Medical costs prescribed by a physician, including improvements to your home and medically necessary equipment and the costs to operate it.

• Admission and travel to a medical conference for a chronic illness suffered by you, your spouse or one of your dependents.

• Alcohol and drug abuse treatments and approved stop-smoking programs

• Ongoing costs for seeing-eye dogs and other service animals

• Weight loss programs from treatment of specific diseases (but not programs simply to improve appearance), and health club dues prescribed for a medical condition

• Wigs for cancer patients (but not hair transplants), recliners for cardiac patients, reconstructive breast surgery for breast cancer patients, laser surgery to correct vision, orthopedic shoes for those with foot problems, cosmetic surgery to ease a deformity.

• Remedial reading for a dyslexic child, an attendant to accompany a blind or deaf student, and clarinet lessons prescribed to alleviate sever tooth malocclusion

Be sure you include medical expenses for yourself, your spouse, and everyone else listed on your tax return. If you pay medical expenses for your child, you can claim those expenses even if you do not claim the child on your tax return. And you can claim medical expenses you pay for your parents if you furnish over half of their support. And if you paid bills for a dependent who died during the year, you can claim those expenses as well.

For more information about medical expenses deductions, go to the IRS website and download IRS Publication 502.

Here’s the skinny:

Weight loss programs ARE deductible

All programs – whether a big commercial program like Weight Watchers, Jenny Craig or a physician or hospital-based weight loss program – can be deducted, providing your doctor has confirmed that your current weight is a threat to your health, and has therefore ordered you to enroll in a program to treat a specific disease, whether obesity (a designated disease as of 2002), hypertension, heart disease, or high cholesterol, for example. You must have this in writing.

Expenses must be legitimate

While you cannot deduct the obvious – such as the cost of diet foods (considered a personal expense), home exercise equipment, health club/gym/spa dues, nutritional supplements or any costs that are covered by insurance – legitimate program expenses include everything from initial fees to meeting fees to behavioral counseling, to appointments with physicians, dieticians, and nutritionists.

Consider costs

To get a deduction, costs must exceed 7.5% of your adjusted gross income. If you make $45,000, for example, you can deduct weight loss expenses above $3375; if you make $50,000, you can deduct expenses exceeding $3,750.

Vanity doesn’t count

Thinking about getting liposuction to suck away those extra five pounds you’re carrying on your hips? Considering joining a gym just because you want to look – and feel – better? Expenses, as such, that are merely beneficial to general health, do not count, but things like Bariatric surgery, FDA-approved weight loss drugs and other medical expenses – providing they relate to alleviating or preventing a physical or mental defect or illness – do.