- Health insurance premiums,
- Long-term care insurance premiums (limits apply),
- Medical and dental services,
- Prescription drugs, and
- Mileage (23 cents for 2015 and 19 cents for 2016 per mile driven for health care purposes).
Consider bunching non-urgent medical procedures (and any other services and purchases whose timing you can control without negatively affecting your or your family’s health) into one year to exceed the 10 percent floor. (See the Case Study “Bunching medical expenses to save taxes.”)
Taxpayers age 65 and older enjoy a 7.5 percent floor through 2016 for regular tax purposes but are subject to the 10 percent floor now for alternative minimum tax (“AMT”) purposes. These taxpayers may want to bunch medical expenses into 2016 to potentially be able to take advantage of the 7.5 percent floor.
If one spouse has high medical expenses and a relatively lower AGI, filing separately may allow that spouse to exceed the AGI floor and deduct some medical expenses that wouldn’t be deductible if the couple filed jointly.
Expenses that are reimbursable by insurance or paid through a tax-advantaged account such as the following aren’t deductible:
HSA. If you’re covered by qualified high-deductible health insurance, you can contribute pretax income to an employer-sponsored Health Savings Account—or make deductible contributions to an HSA you set up yourself—up to $3,350 for self-only coverage and $6,750 for family coverage. Moreover, for 2016, you may contribute an additional $1,000 if you’re age 55 or older.
HSAs can bear interest or be invested, growing tax-deferred similar to an IRA. Withdrawals for qualified medical expenses are tax-free, and you can carry over a balance from year to year.
FSA. You can redirect pretax income to an employer-sponsored Flexible Spending Account up to an employer-determined limit (not to exceed $2,550 for plan years beginning in 2016). The plan pays or reimburses you for qualified medical expenses. With limited exceptions, you have to make your election before the start of the plan year. What you don’t use by the end of the plan year, you generally lose—though your plan might allow you to roll over up to $500 to the next year. Or it might give you a 2 ½-month grace period to incur expenses to use up the previous year’s contribution. If you have an HSA, your FSA is limited to funding certain “permitted” expenses.
Seek the services of a legal or tax adviser before implementing any ideas contained in this blog. To reach a financial advisor at Lane Gorman Trubitt PLLC, call (214) 871.7500 or email email@example.com.