As Tax Preparers Guide, the first thing most clients will ask you is whether or not their medical expenses are tax-deductible. You likely know that there’s no easy answer to that since it depends.
First, you need to find out what types of medical expenses they have, their adjusted gross income (AGI), if they’re going to itemize their deductions or go for the standard. Once you have all the necessary information, you’ll be able to give them a much more detailed and reliable answer.
Here is everything you need to know about tax-deductible medical bills so that you can help your clients better!
Which Kinds of Medical Expenses are Tax Preparer Guide Deductible?
The IRS allows a wide range of medical expenses to be deducted, therapy, treatments, medication, and more. They might even allow alternative therapies like acupuncture. There are several main categories of deductible medical expenses, which are the following:
- health insurance premiums (excluding any portion covered by employers)
- Payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and non-traditional medical practitioners
- Prescription drugs
- Most dental expenses
- Expenses such as eyeglasses, hearing aids, crutches, wheelchairs, and more
- Nursing home care
- Home improvements that increase accessibility for differently-abled people
- Transportation costs incurred while traveling to receive medical care
- Lodging costs up to $50 per night when traveling to receive medical care
And expenses that are not eligible to be deducted are either elective, unnecessary, or non-medical, like the following:
- Funeral or burial expenses
- Non-prescription medicines
- Toiletries
- Cosmetics
- Wellness trips and programs
- Most cosmetic surgery
- Nicotine gum or patches without a prescription
If your client’s medical expenses fall under a more gray area, you can use the IRS’s Can I Deduct My Medical and Dental Expenses? It’s a tool that can help you swiftly determine whether their medical expenses qualify for a deduction or not. For more information about qualified medical expenses, read through IRS Publication 502.
How Do You Calculate Deductions for Medical Expenses?
After you have determined your client’s qualifications for tax-deductible medical expenses, it’s time that you start calculating how much will be deducted. You can begin by determining your client’s AGI. From there, only medical bills exceeding 7.5 percent over their AGI will be deductible.
Simply put, you need to multiply your AGI by 7.5% and subtract the result from the qualifying medical expenses, and the amount left will be deducted.
For example, suppose your client’s AGI is $80,000, 7.5% of that is $5,600. They can only deduct medical expenses that go over this amount. If their qualified medical expenses amount to $9,000, $3,400 of it would be deducted from their taxes.
What is the Standard Deduction?
Keep in mind that your clients can only deduct medical expenses if they are itemizing deductions. If their deductible medical expenses combined with their other itemized deductions are less than the standard deduction, opting for the standard deduction makes the most sense.
It will be better to itemize medical deductions only when the client’s total medical expenses exceed the standard deduction. If it happens to be less and if their deductible medical expenditures already combined with itemized deductions are less than the standard deduction, going for the standard deduction will be for the best.
What about Self-Employed Clients?
Self-employed clients with health insurance premiums can deduct the cost as a business expense instead of an itemized deduction. This adjusts their income and applies regardless of whether they itemize deductions or take the standard deduction. They’ll likely have to meet specific criteria first.
Summary
Tax deductions can be quite a bother. If you’re a tax preparer with multiple clients, you’ll need to be very organized and quick about gathering their documents and information. Once you get familiar with the systems, which may depend on the state you’re in, you should be able to help your clients with more ease.
As tax preparers, you need to be very detail-oriented and organized. It can be a lot of work, especially if you’re doing it alone. Here at Keystone Tax Solutions, we’re committed to helping you make your job easier. We offer the best professional tax software to help you stay on track and keep your work moving smoothly.
