Medical and Dental Expenses – IRS Publications 502 + 969
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Medical and Dental Expenses – IRS Publications 502 + 969

Business Entity Selection and the Tax Consequences of Converting

Medical and Dental Expenses – IRS Publications 502 + 969

This post is a quick overview of IRS Publication 502, Medical and Dental Expenses and IRS Publication 969 Health Savings Accounts and Other Tax-Favored Health Plans.

You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

If you, your spouse or dependents had medical or dental costs as defined above, you may be able to deduct those expenses if they in total for the year exceed 7.5% of your adjusted gross income. You deduct qualifying medical and dental expenses if you itemize on Form 1040, Schedule A. You can include the medical and dental expenses you paid during the year, regardless of when the services were provided. Be sure to keep good receipts or records in order if called upon to substantiate your expenses as I have been seeing an increase in audits specifically targeting this deduction.

Your total medical expenses for the year must be reduced by any reimbursement received. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement or those with a qualifying relative who is not your child.

You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. You can deduct the actual fare for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 19 cents per mile for 2011.

Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.