A common misconception regarding the medical and dental deduction on your personal income tax return is that the total amount you pay in medical expenses is deductible. However, this is not the case. Only the amount you pay in qualified medical and dental expenses which exceeds 7.5% of your adjusted gross income (AGI) is actually deductible.
Example: Bob has an adjusted gross income of $100,000. He may deduct qualified medical and dental expenses that exceed $7,500.00 (7.5% of $100,000).
Therefore, only the amount that is paid over 7.5% of your AGI is deductible.
The most common hurdle in claiming this particular deduction is having enough in medical expenses to really make a difference in your tax return. However, if you consider all that is included in medical and dental expenses, it may become easier to claim the deduction effectively.
Qualified medical and dental expenses include non-reimbursed medical and dental insurance premiums, qualified long term care premiums to a certain extent, prescription medications, visits to doctors (including chiropractors, dentists, psychiatrists, and many other specialists), medical examinations, laboratory services, hospital care, medical aids such as eye glasses and contacts, prescription programs and medications to stop smoking, and certain weight loss treatments. There are also other deductions that are available in addition to this list.
However, there are certain expenses that may not be taken as a medical and dental deduction. Many of these are common sense items, such as the cost of illegal drugs or operations, but there are many that may not be as obvious. While prescription aids to stop smoking are deductible, over-the-counter nicotine treatment medications are not. In fact, no medication that is available over-the-counter is qualified. Diet foods and cosmetic surgery that is not medically necessary are also not deductible. Life insurance premiums may also not be claimed as a deduction.
For the most part, medically necessary treatments prescribed by a doctor are deductible. Therapy that is not medically necessary or is illegal is not deductible.
In calculating your medical and dental expenses, you may include expenses you incurred for yourself, your spouse, your dependents and certain other individuals that do not qualify as your dependents but that meet certain other requirements. Medical expenses paid for a child of a divorce that may not be claimed as a dependent may qualify as a medical and dental deduction. Likewise, other individuals that would qualify as your dependents but had too much of an income may also have medical expenses that you paid that may be deductible.
Although your medical and dental deduction may not seem like an exorbitant amount, when coupled with other qualified deductions on Schedule A, it may save you a great deal of tax dollars. It is important to calculate all of your possible deductions on Schedule A and compare your itemized deduction with your standard deduction to see which one provides the most cost benefit.