Diversified Tax Tidbits – Medical expenses and your taxes, Part 2

#MIDDLEBURY

by Mark A. Burns

Last month, we provided an overview of this topic. This month we will discuss some more specific aspects of this topic.

1. Health insurance premiums are deductible, as mentioned last month. And this includes any Medicare premiums you pay for Parts A, B, C, or D, including premiums that are deducted from your social security benefits.
2. Health insurance premiums for a self-employed person will generally be fully tax deductible on the front of your tax return as an adjustment to Adjusted Gross Income (AGI). So you do not have to itemize your deductions, and the deduction also is not subject to the percent of AGI limitation we discussed last month.
3. On the other hand, personal life or disability insurance premiums are not allowed as deductions. Other nondeductible expenses include maternity clothing, hair transplants, cosmetic surgery (not medically necessary), and dance lessons.
4. Capital improvements to your home – Generally these are not tax deductible but if you make capital improvements for a specific medical condition (e.g., wheelchair ramps), the expense is tax deductible to the extent the cost of the improvement exceeds any increase in the value of your home resulting from the improvement (and most of these improvements add no recoverable value to the home).
5.  Divorced parents – Last month, we mentioned you are generally permitted to deduct medical expenses only for you and your dependents. But divorced parents generally are allowed to deduct medical expenses for their child even if the other spouse is claiming that child as a dependent. Obviously, both parents cannot claim the same expenses.
6. Continuing care/life care facilities – When someone takes up residence in one of these facilities, there are up front entrance fees and/or monthly fees. The IRS generally allows a portion of these payments to be treated as medical expenses, and the facility will normally provide you with your tax deductible amount.
7. Insurance reimbursements – Only out-of-pocket medical expenses are tax deductible. So if you get reimbursed by insurance coverage, then no deduction is allowed. Also if you take a tax deduction for an expense you paid in one year, and then get reimbursed in a subsequent year, you must report the reimbursement as taxable income.

READERS: Do you have a tax topic you would like Mark Burns to discuss in this column? If so, please send your column idea to Mark@DFSPC.biz.

Mark A. Burns, M.B.A., is a C.P.A. with Diversified Financial Solutions PC in Southbury. He can be reached at 203-264-3131 or Mark@DFSPC.biz.