Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses all things tax deductions.
Everyone wants a big refund. So, how do we know we’re maximizing our deductions to accomplish this? It depends on whether you choose to take the standard deduction or itemize your deductions. Most taxpayers find it more financially rewarding to take the standard deduction. In addition, itemizing deductions can be tedious work and meticulous expense tracking throughout the year. If you itemize, you can deduct expenses like:
Charitable deductions
State taxes paid
Mortgage interest
Property taxes paid
Some medical and dental expenses
How do you know which option is best for you? It depends on how many deductible expenses you had for the year, as well as the standard deduction amount for your filing status. In 2023, the standard deductions are:
$13,850 for single filers and married couples filing separately
$20,800 for heads of household
$27,700 for married couples filing jointly and surviving spouses
You can fill out a Schedule A on Form 1040 to see the total amount of itemized deductions you have for the year. If your itemized deductions do not exceed the standard deduction for your filing status, you should take the standard deduction as it will result in a lower taxable income.
Next week, Phil will discuss an important update about IRS revenue officers. See you next Friday!
If You Want to Maximize Your Deductions, Contact Us Today for a Free Consultation
Tax deductions can drastically reduce your total tax liability and allow you to save money. While medical bills can be a significant hardship for many individuals and families, it is critical to understand that certain medical expenses are tax deductible. Understanding the eligibility criteria and documentation requirements will help you in optimizing your deductions and possibly lowering your tax payment. In this post, we will look at medical expenses that are tax deductible.
Tax Deductible Medical Expenses
You might be surprised to hear that the IRS lists over 80 medical expenses that you can deduct from your taxes. While the full list of eligible expenses can be found on IRS Publication 502, some common expenses include:
Acupuncture
Ambulance services
Braille reading materials
Costs incurred to accommodate your home to a disabled condition
Costs incurred to install special equipment in your vehicle that accommodates a disabled condition
Chiropractor
Contact lenses
Dental treatment
Eye exams
Fertility treatment
Hearing aids
Lab fees
Medicines
Nursing home expenses
Physical exams
Psychiatric care
Transplants
X-rays
Medical Expenses That Are Not Tax Deductible
You should always be aware of the medical expenses you may not deduct during tax time including but not limited to:
Cosmetic surgery (some limitations apply)
Funeral expenses
Future medical care
Maternity clothes
Nonprescription drugs and medicines
Nutritional supplements
How to Claim Medical Expense Deductions
In order to deduct medical expenses on your tax return, you will need to itemize your deductions. That being said, it is really only worth doing if your medical expenses exceed the standard deduction. The 2022 standard deduction is $12,950 for a single filer and those who are married but filing separately, $25,900 for married couples filing jointly, and $19,400 for heads of households. These figures are set to increase for tax year 2023 to the following:
Single Filers, Married Couples Filing Separately: $13,850
Married Couples Filing Jointly: $27,700
Heads of Households: $20,800
If it seems itemizing your deductions would save you money than taking the standard deduction, you can deduct your qualified medical expenses using Schedule A. Keep in mind that you may only deduct unreimbursed medical expenses paid during the year previous. In addition, you can only deduct expenses that exceed 7.5% of your adjusted gross income (AGI). For example, if your AGI is $45,000, then the first $3,375 (7.5% of $45,000) of qualified medical expenses cannot be deducted. Anything that exceeds $3,375 can be deducted. Assuming you had $10,000 of unreimbursed medical expenses for the year, you would be allowed to deduct $6,625 of it on your tax return.
If you do decide to deduct medical expenses during tax time, be sure to keep adequate records of your expenses during the year. Keep receipts, invoices, statements, and any other relevant documentation that validate your medical expenses. Not doing so can result in financial loss, risk of audits, and dealing with the IRS. If the IRS has reached out to you about your tax situation, we can help. Optima Tax Relief has over a decade of experience helping taxpayers with tough tax situations.
