Health is one’s greatest asset; a reason why a person’s value decreases as they get older, or why a history of an illness can mean higher premiums for your life insurance. To put it simply, good health is a key ingredient in achieving your goals, whether it is financial or not.
However, as much as it adds a great amount of value to you, maintaining your health can also be expensive, more so during the pandemic, thus, the health and wealth paradox. But did you know that there’s a workaround for this?
The strain that healthcare can have on your pockets can be minimized by writing off medical and dental care expenses from your income tax. What’s more, this is applicable to costs incurred not only for yourself but also for your spouse and dependents. This can be done by itemizing your deductions for a taxable year on your Schedule A (Form 1040), Itemized Deductions.
The amount of medical and dental expenses that exceed 7.5% of your adjusted gross income is deductible.
Does This Apply If You Are Self-Employed?
Itemized deductions on medical and dental expenses are only available to employees. For self-employed individuals, you can file for a health insurance deduction which is an income adjustment. It may apply to health insurance coverage for yourself, spouse, dependents, or even a child (son, daughter, stepchild, adopted child, or foster child) under 27 years old at the end of the year, whether dependent or not.
If you are any of the following, then you may be eligible for this deduction:
- Self-employed and had a net profit for the year reported on Schedule C (Form 1040) or Schedule F (Form 1040).
- A partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), box 14, code A.
- You used one of the optional methods to figure out your net earnings from self-employment on Schedule SE.
- You received wages in 2021 from an S corporation in which you were a more than 2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2.
What Medical Expenses Are Deductible And Not Deductible?
Typically, all health expenses for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body, are deductible. It is impossible to enumerate all deductible items, so it’s better to remember a handful of those expenses that are not deductible:
- Funeral or burial expenses
- Nonprescription medicines
- Toothpaste and toiletries
- A trip or program for the general improvement of your health,
- Cosmetic surgery, except when it is needed to improve a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. In that case, the costs incurred are deductible.
- Nicotine gum and nicotine patches that don’t require a prescription
Aside from medical care expenses, you can also deduct admission fees and transportation costs to a medical conference relating to your, your spouse, or dependent’s chronic illness, as well as transportation costs essential to medical care:
- Fare for a taxi, bus, train, ambulance
- For transportation by personal car:
- Actual out-of-pocket expenses for gas and oil, or
- The standard mileage rate for medical expenses, plus the cost of tolls and parking.
Can You Deduct Medical Insurance Premiums?
Medical insurance premiums for a qualified long-term care insurance policy, covering qualified long-term care services, are deductible if you pay for them yourself. Employer-sponsored premiums are not deductible, except when they are included in box 1 of your Form W-2, Wage and Tax Statement.
If you’re in doubt as to whether your medical and dental expenses are qualified for the deduction, you can utilize the Internal Revenue Service’s Interactive Tax Assistant. But if you need a more personal touch or have other tax-related matters to consult, you can rely on one of our trusty tax specialists to walk you through the details and process.