If you’re running a business or looking to optimize your personal taxes, understanding how healthcare expenses can work to your advantage is crucial.
Maximizing tax deductions is like finding hidden treasures that can help you keep more of your hard-earned money. Yet, one of the least optimized deductions is the medical deductions. Generally, you can deduct medical and dental expenses that are more than 7.5% of your Adjusted Gross Income (AGI). This typically includes medical expenses you pay for yourself, as well as those you pay for a spouse or dependent. But, while you may be eligible for the deduction, navigating the administrative part can be challenging.
Different rules apply to various types of deductions such as health insurance premiums or medical equipment. This coupled with changes in tax laws and regulations, make healthcare tax deductions a potential source of confusion for many.
At Fusion CPA, we have years of experience helping businesses and individuals make the most of their finances – whether it be through making smart investment choices, or optimizing tax deductions. In this article, our accountants offer tips and best practices for tackling healthcare tax deductions.
Eligible medical deductions
Filing for medical deductions on Form 1040 involves a crucial process for both businesses and individuals aiming to optimize their tax returns.
For businesses, eligible healthcare expenses incurred for employees, such as health insurance premiums or qualified medical expenses, can be deducted as part of their business expenses. These deductions are reported on the appropriate sections of the business tax return, reducing the taxable income and potentially leading to substantial savings. Similarly, for individuals, deductible medical and dental expenses exceeding the prescribed percentage of their adjusted gross income (AGI) are reported on Schedule A of Form 1040 when itemizing deductions.
How to optimize healthcare tax deductions
Consider the following to ensure accuracy and compliance and to help you make the most of the deductions you are eligible for.
1. Know the eligible expenses
Familiarize yourself with the healthcare expenses that you are eligible for tax deductions. These can include medical and dental expenses for yourself, your spouse, and your dependents.
2. Confirm that you meet the threshold
Understand that medical expenses need to exceed a certain percentage of your adjusted gross income (AGI) to be deductible. As of the 2021 tax year, the threshold is 7.5% of your AGI. This means that only expenses exceeding this percentage are eligible for deductions.
3. Keep accurate record of healthcare expenses
Maintaining thorough records of your healthcare-related transactions is essential. Save receipts, invoices, and statements for medical services, prescriptions, and other qualified expenses.
4. Consider including your premiums
While health insurance premiums typically can’t be directly deducted, some self-employed individuals or small business owners may be able to deduct premiums as part of their self-employment expenses.
5. Know what is not deductible
Certain healthcare expenses, such as cosmetic procedures, vitamins, and general health items, are usually not eligible for tax deductions. Consulting with a tax professional can help clarify what’s deductible and what’s not.
6. Itemize deductions on your tax return
To claim healthcare expenses, you’ll need to itemize deductions on your tax return using Schedule A of Form 1040. This will help to clearly differentiate medical deductions.
7. Consider other deductions
Keep in mind that other healthcare-related deductions, such as health savings account (HSA) contributions, self-employed health insurance, and long-term care insurance premiums, might also be deductible. Therefore it is important to research and consult with a tax expert to explore these options.
Partner with experts
Filing your taxes can be an intricate process as changes to tax laws and regulations might impact eligible deductions. Additionally, maintaining detailed records is also a crucial part of the tax filing process as it ensures that you have the necessary documentation to support your claims. Partnering with a CPA who understands tax laws and keeps abreast of changes minimizes the risk of errors and reduces the chance of being audited by the IRS.
At Fusion, our CPAs have years of experience helping businesses and individuals optimize their tax deductions. We service multiple industries and stay abreast of regulatory changes. Contact us if you need assistance with healthcare tax deductions or general tax filing. Our CPAs can help you.
This blog article is not intended to be the rendering of legal, accounting, tax advice, or other professional services. We base articles on current or proposed tax rules at the time of writing and do not update older posts for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.