The rising costs of health insurance and medical care paired with changing tax laws have made it increasingly more difficult for individuals to claim medical expense deductions. Changes in the Affordable Care Act (ACA) have increased the income-based threshold for deducting itemized medical expenses from 7.5% of adjusted gross income to 10% for the 2016 tax year.
Those who are 65 years and older are being given a one-year reprieve and will be allowed the previous 7.5% AGI this year. “Adjusted gross income (AGI) is a measure of income calculated from your gross income and used to determine how much of your income is taxable.” Investopedia, Adjusted Gross Income – AGI
Personalized assistance by a CPA firm in Las Vegas will enable you to go through your records to ensure you maximize medical expense deductions. The following includes tax-planning guidance to help you get started in making the most out of these deductions.
Concentrate Medical Expense Deductions in Alternating Years
Those who have flexibility about when and how their medical expenses are incurred can work with a CPA firm to concentrate costs in alternating years. This allows you to claim large medical deductions in alternate years for a better financial outcome over the long-term.
On the 2016 personal tax return, that individual can claim an itemized medical expense deduction of $1,500 ($9,000-$7,500). For 2017, because the $7,500 threshold wasn’t met, they cannot claim any deductions for the year.
Still, it makes overall financial sense because if the medical expenses had been spread out equally over the two years — $11,000 would have been $5,500 in 2016 and $5,500 in 2017 — then no deductions could have been made in either year.
In short, concentrated or ‘bunched’ expenses in alternate years can provide opportunity for a deduction, where spreading out over time would have provided none.
Take Advantage of Company Health Care Flexible Spend Account
Another strategy your CPA firm in Las Vegas may recommend is contributing to an employer-provided health care FSA plan. Such contributions can be subtracted from taxable salary, and then used to reimburse you for qualified medical expenses. The current cap for FSA contributions is $2,550.
It doesn’t matter where you work, how old you are, or what your medical expenses are, anyone can enjoy improved tax results with the right planning and knowledge of how to take advantage of options like employer health care FSAs. Learn more about medical deductions by contacting Fair, Anderson & Langerman, your local CPA firm in Las Vegas, at 702-870-7999.