Time is running out to take advantage of some important tax breaks before 2003 comes to a close. As of this year, several new ones are available, especially with regard to health expenses. With at least two months left on the calendar, it's possible to do some planning in order to take advantage of them.
First, now that the medical profession has formally recognized "obesity" as a disease, certain expenses related to losing weight are tax-deductible. The critical component is that the procedure, diet program, or foods must be prescribed by a doctor. In other words, if you simply decide to join Weight Watchers so you'll knock 'em dead at the holiday office party, this does not qualify.
Furthermore, if the low-cal foods you consume as part of your weight-loss plan just replace the food you'd normally eat (Lean Cuisine lasagna instead of your homemade variety or some special breakfast shake instead of your normal sausage and egg slider), these are also not tax-deductible. Neither are vitamins, in most cases.
Now that their patents have expired, a number of well-known drugs -- especially to treat allergies and digestive disorders -- are available without a prescription. But keep in mind that while your out-of-pocket costs for prescription medicines and insulin are deductible, expenses for over-the-counter (OTC) medicines are not, even if your doctor recommended them.
The problem is, the price of these OTC drugs can be higher than the co-payment you would have paid if you still purchased them under your company medical plan. So from the standpoint of the consumer, they represent a higher out-of-pocket cost. To soften the blow, the IRS ruled this year that you can use money set aside in a "Flexible Spending Account" to pay for non-prescription medications. This way you at least get to buy them with pre-tax dollars, provided, of course, your employer offers such a plan.
If you or your family members regularly take over-the-counter medications [and] if you are lucky enough to have an FSA through your -- or your spouse's -- job, you should think about increasing the amount of money you set aside in your account for next year. This is a decision you typically make in November, when most companies ask their employees to sign up for healthcare benefits.
While OTC drugs are not deductible, certain medical devices and supplies are. These include crutches, thermometers, bandages, blood sugar testing equipment, and other items "related to medical care." Visit the IRS Web site, www.irs.gov, for details.
Thinking about laser surgery to correct your vision? While it probably won't make you any less nervous about undergoing the procedure (I did), at least the cost is less painful because it is tax-deductible.
But fuhgeddabout that nose job or tummy tuck you had. Cosmetic surgery is never tax deductible unless, in the words of the IRS, "it is needed to correct a deformity related to an injury, disease, or congenital abnormality, to meaningfully promote the proper function of the body, or to prevent or treat illness or disease." So breast reconstruction following a mastectomy is deductible, while breast augmentation surgery is not.
Oh, and another thing, dahling, those dazzling white teeth you paid a couple of hundred bucks (or more) for, are on you. Your old, yellowish ones worked fine when it came to masticating your food. Teeth whitening is considered "cosmetic" not "necessary" and, therefore, is not a deductible medical expense.
While the term "tax deduction" has a promising ring to it, in real life, most taxpayers do not get any tax benefit from their medical expenses. That's because there are several hurdles you have to cross before the deduction kicks in. For starters, you have to apply for it. According to the IRS, although about a third of all taxpayers itemize their deductions, less than 6% of us claim medical expenses.
Keep in mind, you only get to deduct medical costs that exceed 7.5% of your Adjusted Gross Income (AGI). For instance, say your AGI is $100,000. Last year, in addition to your usual medical expenses, your daughter had her tonsils out, your son needed braces, your spouse was treated for kidney stones, and you had knee surgery to correct an old college sports injury. While your employer health plan paid for most of this, your out-of-pocket costs came to $8,300.
Your "deductible" medical expenses? $800. ($8,300 minus $7,500) Kind of disappointing.
However, if you know in advance about upcoming medical expenses -- laser eye surgery, for instance -- "bunching" them up into the same year can help you meet the "7.5% of AGI" threshold so you can benefit from the deduction. If you're close to this point already, think about scheduling other elective procedures before the end of this year. Or, if you know your spouse is quitting his/her job in order to return to school or stay home with the kids, it makes sense to postpone such expenses until next year. Your lower family income will mean a lower threshold and a better chance that more of your medical expenses will actually be deductible.
Hope this helps,
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