Detailing the changes in tax law made by the Tax Cuts and Jobs Act is one thing, but now that tax season is in full effect, it’s time to put that knowledge into practice and prepare to file. As you begin to gather that receipts and paperwork that you’ll give to your favorite BGW team member, make sure you don’t overlook your 2017 medical expenses -- even if you’ve never deducted them before.
The new tax rules allow for a more generous tax break for medical expenses, and the break is retroactive. Under the new tax rules, if your total out-of-pocket medical expenses in 2017 exceeded 7.5% of your adjusted gross income, the amount you paid above that threshold could be deductible. This is a change from previous law when a 10% floor was in place for taxpayers under age 65 (those over age 65 always had a lower threshold).
For 2017, the standard deduction for single taxpayers or married couples filing separately is $6,350. For married couples filing jointly, that amount is $12,700; and for heads of household, $9,350. If you have other deductions and their total takes you over the value of your standard deduction, you can take advantage of the medical expense deduction.
This drop is temporary -- it will return to 10% in 2019 -- but it’s lucrative, and it means far more people will be able to take advantage of it. With the 7.5% floor, a taxpayer with adjusted gross income of $50,000 would need just $3,750 in medical expenses to qualify for the deduction. With the 10% floor, that same person would need at least $5,000 in expenses to qualify for the deduction. Numerous medical expenses count, ranging from co-pays to travel costs incurred to receive medical care, and medical expenses for dependents count toward your total
If you pay for health insurance with after-tax dollars, your premiums might be able to count toward that deductible. If you’re self-employed, the rules are bit different, because the deduction for self-employment insurance is an adjustment to income and you don’t need to itemize to take advantage of it. But if you recognized a profit last year, you might be able to write off the premiums you paid for health, dental and long-term care insurance for you and your dependents. We’ll help you decide the right course to take.
Whether self-employed or not, certain medical expenses come with deductibility limitations, including long-term care premiums. In other words, you can’t deduct everything. But because the 7.5% threshold will eventually expire, and the standard deduction will nearly double this year, causing fewer people to itemize, we recommend you take advantage of this more generous tax break for medical expenses now. We’re here to help, as always.
