![]() You know you're going to need a surgery this year that will leave you on the hook for your $5,000 deductible, but you don't anticipate having enough deductions to make it worth your while to itemize your deductions when you file your taxes. So let's say you have an HSA-qualified high-deductible health plan (HDHP) and an HSA, but you only have $500 in the HSA. If you don't claim your medical expenses as an itemized deduction, you can use your HSA funds to pay for them - either directly or by reimbursing yourself later on (as long as your HSA was already established when you incurred the expense, you can reimburse yourself at any point in the future). (Of course, we don't know your specific situation - be sure to speak to a licensed financial professional before making any determinations about your needs.) Using your HSA But do some back-of-the-envelope estimating first you don't want to find out after the fact that you went through all that and still end up being better off with the standard deduction. That way, you'll maximize your medical expenses, increasing the amount that's over 10% of your AGI and ultimately increasing the total itemized amount you'll be able to deduct on your tax return. This is important if you're planning ahead too: If you know that you're anticipating substantial medical expenses, it might be a good idea to also go ahead and get those dental implants or LASIK that you've been considering (assuming you can swing it financially) and have everything done in the same year. But if your total itemized deductions (including medical expenses above the allowable threshold) are larger than the standard deduction, itemizing might end up being the best option for you. ![]() As a result, only about 12% of tax filers are expected to itemize deductions-most filers are better off with the standard deduction. Starting with 2018 taxes, the itemize-or-don't-itemize question changed quite a bit, as the Tax Cuts and Jobs Act significantly increased the standard deduction. If you purchased your own health insurance (on an after-tax basis) and you're not self-employed, you can include the premiums you paid in your total medical expenses when you're determining how much you'll be able to claim as an itemized deduction). In general, the criteria are fairly broad - most reasonable expenses can be included, as long as you paid them yourself using after-tax funds.Ī key part of this decision is that you have to itemize your deductions in order to deduct medical expenses (note that if you're self-employed and you purchased your own health insurance, you can deduct the premiums you paid without itemizing your deductions, using Line 29 of Form 1040 Schedule 1. ![]() IRS Publication 502 will help you figure out what counts as an eligible medical expense. So if your total medical expenses are still $9,500, you'll only be able to deduct $4,5. If your AGI is $50,000, you'll only be able to deduct medical expenses in excess of $5,000 (10% of your AGI). Now let's say you're planning for this year - the numbers will be a little different, since the threshold has changed. That leaves you with $5,750 that you can deduct. You're allowed to deduct your medical expenses that exceed that limit, so you have to subtract $3,750 from your $9,500 total. How much can you deduct? First, you calculate 7.5% of $50,000, which is $3,750. ![]() So what does that mean in terms of dollars and cents? Let's say your total medical expenses in 2018 were $9,500 and your AGI was $50,000. For 2019 and beyond, it has returned to 10%. As of 2013 (under the Affordable Care Act), it changed to 10%, but the Tax Cuts and Jobs Act ( H.R.1) temporarily reset the threshold to 7.5% for 20. ![]() You can only deduct medical expenses that are more than a certain percentage of your adjusted gross income (AGI). Medical expenses can be deducted on your tax return if you itemize your deductions, but the specifics have changed a bit over the last several years. ![]()
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