Caribou: Tax Deductions on Medical Expenses in 2020

August 18, 2020

Caribou

Caribou

August 18, 2020

Even after asking the right questions and lowering your out-of pocket-expenses, a medical bill for your last cancer treatment can still drain your finances. As your treatment and care continues, it is not uncommon to see medical bills adding up and eventually becoming a financial burden. Luckily for taxpayers, there is some relief available in the form of tax deductions.

Can I Claim Medical Expenses on my Taxes? 

According to the Internal Revenue Service (IRS), some of your medical expenses related to the cost of cancer are tax deductible. But for this to happen, you need to know what is considered a medical expense and what steps you need to take to claim your deductions properly. 

What is tax deductible?

Knowing what is considered a medical expense is the first step to understanding if you can claim medical expenses on your taxes. According to tax laws, a medical expense is considered the cost of a diagnosis, cure, mitigation, treatment or prevention of a disease. It includes the costs associated with health insurance premiums that are not deducted pre tax from your paycheque, doctor appointments, hospital stays, diagnostic testing, prescription drugs and medical equipment. 

Here is an overview of what the IRS allows you to deduct from your taxes:

  • Preventative care

  • Treatment

  • Surgeries 

  • Dental and vision care

  • Visits to psychologists and psychiatrists

  • Prescription medications and appliances such as glasses, contacts, false teeth and hearing aids

  • expenses to travel or transportation for medical care (i.e. bus fare, parking fees)

  • Wigs for cancer patients

  • Fees to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners

  • Payments for inpatient hospital care or residential nursing home care

  • Payments for insurance premiums

For a full list of medical expenses that qualify as tax deductible, consider consulting a tax advisor, the IRS website, or a Healthcare Advisor.

What isn’t tax deductible? 

Knowing what is not tax deductible is just as important as knowing what is tax deductible. The IRS does not allow you to deduct the following from your taxes:

  • Any medical expenses for which you are reimbursed  by your insurance or employer

  • Cosmetic procedures

  • Non-prescription drugs or medicine 

  • Funeral or burial expenses

  • Employer-sponsored premiums paid under a premium conversion plan, cafeteria plan, or any other medical and dental expenses paid by the plan

How much can be Deducted from my Taxes? 

As of 2020, you are able to deduct qualified medical expenses that exceed 10% of your adjusted gross income. For example, if you have an adjusted gross income of $50 000, only expenses exceeding $5,000 (10%) can be deducted from your taxes.

If your medical expenses for the year end up being below $5,000 and you have an adjusted gross income of $50,000, then you will not be able to claim medical expenses on your taxes. 

However, if your medical expenses end up being $8,000 at the end of year, and you have an adjusted gross income of $50,000, then $3,000 could be deducted from your taxes. 

How to Claim Medical Expenses on Taxes 

To be able to claim your medical expenses, you have to itemize your deductions. So instead of taking the standard deduction, you will have to pick and choose your tax deductions. Itemized deductions are the  expenses that can decrease your taxable income. Claim the medical expenses deduction only if your itemized deductions are greater than the standard deductions. Itemizing your deductions will require you to use IRS Form 1040 to file your taxes and attach Schedule A

Remember: only include medical expenses that you paid during the year and exclude the expenses that were reimbursed.

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