Healthcare tax considerations – Part I

Call it what you will, the Affordable Care Act or Obamacare, but just by saying it, you will find that everyone has an opinion. Those opinions run the gamut, from wildly supportive to thinking it signals a gross overstepping of the bounds of government power, but its existence cannot be denied.

At least for another tax season.

The fact that it is so tied in with the tax process is another matter that can generate discussion. I can personally guarantee that those in the tax industry do not always have a lot of medical knowledge, but we have had to learn to at least document some medical information. For, as you are most likely aware, there can be tax penalties if you do not hold health insurance.

If you had 2016 Marketplace coverage and didn’t re-enroll or change your health plan by December 15, the Marketplace probably enrolled you for 2017 health coverage in the same plan (or a similar one) based on information from your 2016 application. This means you’ll have health coverage January 1. But the only way to make sure you have the right savings and the plan that’s best for you is to update your application and compare plans. You can keep the plan you’ve been enrolled in or change to any other plan, even if your 2017 health care coverage has started, until January 31, 2017.  If purchasing a plan is something you need to do, though, it is not something to procrastinate about. Giving yourself enough time to look over your different options and make the best decision only makes sense. And if you are curious about just what those decisions mean for your tax picture, please do not hesitate to contact us.

Even if you find the connection between national health care and your tax return mysterious, it is not the only place where medical care can have an effect on your tax return.  Medical expenses, after all, can be an itemized deduction.

As is always the case with the IRS, this is not as simple as getting to deduct every medical expense you have throughout the year. Sure, this can include medical and dental expenses paid for you, your spouse and your dependents, but you can only deduct the portion of the expenses that exceeds 10% of your adjusted gross income (or 7.5% if you or your spouse is 65 or older).

I do not want to only seem negative in this article. Therefore, instead of going through more of the complications of the IRS rules concerning this deduction, I want to mention a few things that could be a qualifying medical expense of which you may not have been aware.

Inpatient treatment at a center for alcohol or drug addiction can be included. This can be an expensive proposition, so hopefully this allowance by the IRS could ease the pain of someone in this situation getting the help they need. In a similar vein, other acceptable expenses could include programs to stop smoking and participation in a weight-loss program if a doctor has diagnosed a disease, including obesity, related to weight.

When thinking of medical expenses, remember that it can include certain purchases and not just bills paid to medical providers. This makes up a varied list from prescription medicines, dentures, hearing aids, prescription glasses and contact lenses to crutches, wheelchairs and even guide dogs.

Finally, these expenses can also include transportation deemed primarily for and essential to getting medical care. This can be taken with either actual out-of-pocket expenses or at a standard mileage rate.

With the percentage of income requirement placed on this deduction, it can often be one utilized by those in unfortunate circumstances. We always wish good health to everyone, but at least those who have not been so blessed can get a very slight reprieve by lessening their tax bill. And, as always, if you would like any help in navigating it, please let us know.

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