Deductible Medical Expenses....

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just frank
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Deductible Medical Expenses....

Post by just frank » Mon Apr 16, 2018 8:42 am

Last year the family had a ton of medical expenses, wiped out most of our emergency fund, etc. We had a high deductible cheapo insurance plan (which we will upgrade shortly) so our reimbursement rate has been like 25%.

Liquidating some investments to pay for it all has given me a monster tax bill to boot.

So, it seems that medical expenses are deductible above some percentage of AGI. The internet (and the IRS site) is unclear about whether the line is 7.5% of AGI or 10% of AGI, and TurboTax is not helping me figure it out. I guess this was one of those things amended at the last minute in a confusing way in the Tax Bill. Anyone know what the right answer is....I trust TurboTax, but would like to have a second opinion.

Also, I don't see any schedule or worksheet for documentation. I will obviously collect my receipts (an arduous process), but is claiming this 'audit bait' like a home office expense? Can anyone give me some reassurance? Anyone done this?

Thanks in advance.
Last edited by just frank on Mon Apr 16, 2018 8:43 am, edited 1 time in total.

jebmke
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Re: Deductible Medical Expenses....

Post by jebmke » Mon Apr 16, 2018 8:43 am

7.5%; this should be spelled out in the instructions for Schedule A.

I can't comment on the audit with respect to that line on Schedule A. I have had IRS letters requesting documentation of all entries on Schedule A and Form 8889 (this is the HSA form and the qualified medical expense entry is similar to the Schedule A entry).

I believe the Schedule A inquiries (two years in a row) were triggered by large specific deductions. But they didn't just ask for substantiation of the specific lines but rather, all lines on Schedule A.
Last edited by jebmke on Mon Apr 16, 2018 8:46 am, edited 1 time in total.
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just frank
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Re: Deductible Medical Expenses....

Post by just frank » Mon Apr 16, 2018 8:44 am

Agreed, but that doesn't seem to jibe with my AGI and the TurboTax result....which seems closer to 10%.

Chip
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Re: Deductible Medical Expenses....

Post by Chip » Mon Apr 16, 2018 8:51 am

As jebmke said, 7.5% for 2017. It was 10% for 65 or under but the TCJA lowered it retroactively.

I don't think it's audit bait at all. We complete quite a few returns as TaxAide volunteers with significant medical expenses and I don't recall hearing about an audit for any of them. I have taken them myself every other year for a while by bunching my insurance premium payments. And I am taking them this year, using TurboTax. It is correctly calculating the 7.5% floor.

For several years my mother's medical deductions for assisted living expenses essentially wiped out her tax liability. I never heard a peep from the IRS.

Don't forget to include medical insurance premiums AND LTC premiums if you have them. LTC premiums deducted can't exceed a certain amount based on age. Consult IRS Pub 502 for lists of other things you can deduct.

jebmke
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Re: Deductible Medical Expenses....

Post by jebmke » Mon Apr 16, 2018 9:16 am

just frank wrote:
Mon Apr 16, 2018 8:44 am
Agreed, but that doesn't seem to jibe with my AGI and the TurboTax result....which seems closer to 10%.
I'm not sure how it could be "closer to 10%." It seems to me that if the software has been updated, it would be 7.5%. If you are using early release software and it hasn't been updated, I suppose it is possible that it is using the 10% but I can't see how it would be anything in between.
When you discover that you are riding a dead horse, the best strategy is to dismount.

snowman
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Re: Deductible Medical Expenses....

Post by snowman » Mon Apr 16, 2018 9:33 am

It is 7.5%. HRB is calculating it correctly, I would assume TT does the same. It's not going to be "closer" to one number or another. If you are on ACA, make sure you calculate insurance premiums correctly.

pshonore
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Re: Deductible Medical Expenses....

Post by pshonore » Mon Apr 16, 2018 9:41 am

Turbo tax does have worksheets for this broken out by doctors, drugs, insurance premiums, mileage etc so you may as well fill them out. It may even jog your memory for other items. Only the bottom line total gets on Sched A and goes to the IRS. My guess is somewhere down the line the IRS compares that total to your income and asks for more info if it seems out of line. Whats "out of line" ? No one knows.

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Pajamas
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Re: Deductible Medical Expenses....

Post by Pajamas » Mon Apr 16, 2018 9:47 am

just frank wrote:
Mon Apr 16, 2018 8:42 am
The internet (and the IRS site) is unclear about whether the line is 7.5% of AGI or 10% of AGI,
There is a lot of confusing information out there. Here's a clear statement and an explanation of why there is so much confusing information out there, both in one sentence:

https://www.irs.gov/individuals/changes ... l-expenses
The Tax Reform and Jobs Act of 2017, enacted on December 22, 2017, changed the AGI threshold for medical expenses from 10% to 7.5% for 2017 and 2018 for all taxpayers.

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Re: Deductible Medical Expenses....

Post by neilpilot » Mon Apr 16, 2018 9:54 am

pshonore wrote:
Mon Apr 16, 2018 9:41 am
Turbo tax does have worksheets for this broken out by doctors, drugs, insurance premiums, mileage etc so you may as well fill them out. It may even jog your memory for other items. Only the bottom line total gets on Sched A and goes to the IRS. My guess is somewhere down the line the IRS compares that total to your income and asks for more info if it seems out of line. Whats "out of line" ? No one knows.
Actually there have been various articles published on the "average" medical deductions for the minority (about 1 in 35) of tax filers that claim the medical deduction. Just looking at data from TY2014, the average medical deduction was about $10k for a $100k AGI, and about $20k for a $150k-200k AGI. Unless your return has other red flags, I'd think it unlikely to draw a targeted audit if you were at or near average.

https://www.cchgroup.com/news-and-insig ... deductions
https://www.forbes.com/sites/baldwin/20 ... 4be0ec17dd

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just frank
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Re: Deductible Medical Expenses....

Post by just frank » Mon Apr 16, 2018 12:55 pm

thanks guys....very helpful. I think TT was using an estimated AGI at one point, and that confused me.

So, if my insurance premiums are employer-based pre-tax, I can add the cost of my contribution to the total?

So my deductible amount is my med bills - ins reimbursement - my contribution to ins premium. ??

I will probably have file an extension to dig all this up.....but that is ok.

:beer

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Re: Deductible Medical Expenses....

Post by neilpilot » Mon Apr 16, 2018 12:57 pm

just frank wrote:
Mon Apr 16, 2018 12:55 pm
thanks guys....very helpful. I think TT was using an estimated AGI at one point, and that confused me.

So, if my insurance premiums are employer-based pre-tax, I can add the cost of my contribution to the total?

So my deductible amount is my med bills - ins reimbursement - my contribution to ins premium. ??

I will probably have file an extension to dig all this up.....but that is ok.

:beer
You can only deduct insurance premiums if your employer included them in Box 1 (Gross Wages) of your W-2

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just frank
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Re: Deductible Medical Expenses....

Post by just frank » Mon Apr 16, 2018 12:59 pm

ooh wait. If my deductible expenses are, say 10% of AGI, I get some chunk of 10-7.5% back in tax savings.

I can carry this over to next year?

Say I have 5% next year...can I deduct 10+5=15% next year, and save more??

In my example, I would be able to save taxes on 15-7.5 or 7.5%, versus 2.5 in 2017 and 0 in 2018. Is that right?

If I don't mind loaning the money to the Feds. :mrgreen:

wilshuer
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Re: Deductible Medical Expenses....

Post by wilshuer » Mon Apr 16, 2018 1:07 pm

While going through multiple rounds of IVF we claimed the medical deduction 3 years in a row. Weren't even audited, if my math is correct now it's outside of what would be audit-able. Didn't have too many other deductions that would have thrown up a flag.

In terms of documentation, I did through excel, kept records maliciously expecting some type of an audit. Figured if I went in with all documentation in neat and organized fashion it would help.

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Re: Deductible Medical Expenses....

Post by pshonore » Mon Apr 16, 2018 1:19 pm

just frank wrote:
Mon Apr 16, 2018 12:55 pm
thanks guys....very helpful. I think TT was using an estimated AGI at one point, and that confused me.

So, if my insurance premiums are employer-based pre-tax, I can add the cost of my contribution to the total?
No - premiums paid with pre tax $ don't count

So my deductible amount is my med bills - ins reimbursement - my contribution to ins premium. ??
forget your contributions if they're pre tax

I will probably have file an extension to dig all this up.....but that is ok.

:beer
Don't forget drug co-pays if any, mileage to and from pharmacy/ doctors etc @ 17 cents per miles.

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just frank
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Re: Deductible Medical Expenses....

Post by just frank » Mon Apr 16, 2018 1:20 pm

just frank wrote:
Mon Apr 16, 2018 12:59 pm
ooh wait. If my deductible expenses are, say 10% of AGI, I get some chunk of 10-7.5% back in tax savings.

I can carry this over to next year?

Say I have 5% next year...can I deduct 10+5=15% next year, and save more??

In my example, I would be able to save taxes on 15-7.5 or 7.5%, versus 2.5 in 2017 and 0 in 2018. Is that right?

If I don't mind loaning the money to the Feds. :mrgreen:
OK< answered my own question....can't carry forward unless unpaid.

Chip
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Re: Deductible Medical Expenses....

Post by Chip » Mon Apr 16, 2018 1:20 pm

just frank wrote:
Mon Apr 16, 2018 12:55 pm
So, if my insurance premiums are employer-based pre-tax, I can add the cost of my contribution to the total?
You can't deduct anything that's paid with pre-tax money. So forget about those insurance premiums. Even your share is almost certainly pre-tax. Sorry for the confusion -- I was approaching this from the viewpoint of a retiree who is paying the premiums with after tax money.
So my deductible amount is my med bills - ins reimbursement - my contribution to ins premium. ??
You can deduct out of pocket expenses paid for with after tax money. You can't, for example, deduct expenses that you paid for with HSA distributions.

Again, I suggest a thorough read of Pub 502. You might be surprised at what does and doesn't count as a medical deduction.

RickBoglehead
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Re: Deductible Medical Expenses....

Post by RickBoglehead » Mon Apr 16, 2018 1:22 pm

This ^^^

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just frank
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Re: Deductible Medical Expenses....

Post by just frank » Sat Apr 28, 2018 10:34 am

OK, update and new question....

Update: many (like 25%) of our expenses were NOT deductible according to the info, and it got us down to spitting distance of the threshold, probably just under by our estimation. Frustrating, but we did not deduct any.

New Question:

DW and I each have health care options to choose from, and we have always used DW's plan, which is the 'cheapest' without really figuring out which of her and my 4 choices is the best option RE reimbursements (until last year we had minimal medical expenses that were all 100% covered with a very small copay).

Anyways...the bulk of the new charges are mostly 'out of network counseling', and her plan says it reimburses 80% after deductible. Based up on 2017 experience, it actually reimburses about 30% after deductible....and it was all eligible.

30% << 80% :x And times about $40k in bills!

This I have learned is b/c the insurer determines what each service should cost (I guess about 40% of what is actually charged) and then reimburse me 80% of that figure. And they do not provide me any info regarding what that will be beforehand anywhere I know of. So we have bought the service and taken our crumbs in reimbursement.

My best looking plan for 'out of network counseling' cost $3k/yr and reimburses 60% of that category after (low) deductible.

DW is under the impression that we can sign up for her AND my insurance, submit our bills to hers, and then submit the remainder to mine.

1) is this kosher...for some reason I thought double insurance was illegal.
2) We should make her 80% plan 'primary' and then my 60% (remainder) plan secondary, right?
3) How do I know if my 60% is worse than her 80%...i.e what if my plan pays more for a given thing, and then my 60% is higher than her 80%?
3) any guidance on how this is processed and submitted....from a box of paper receipts?
4) What I am missing?

Thank you!

InMyDreams
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Re: Deductible Medical Expenses....

Post by InMyDreams » Sat Apr 28, 2018 10:51 am

My state does not allow you to "choose" who is primary if you have two insurances, and I think that is true most places (everywhere?):
Each person's employment based insurance is primary (your insurance is primary for you, hers for herself
Your spouse's insurance is then your secondary.
Children's primary insurance is based on which spouse's birthday falls first in the year. If you're born in January, and she's born in December, your insurance will be your child's primary insurance.

You would need to check with your benefits dept or insurance company to see if they allow double insuring.

BTW - did you figure out the 7.5 vs 10% threshold? Congress changed its mind last minute and made it 7.5 % for everyone in 2017 (different in 2018). Did you download the latest version of TT?

pshonore
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Re: Deductible Medical Expenses....

Post by pshonore » Sat Apr 28, 2018 11:23 am

This called co-ordination of benefits. Generally you submit to your primary carrier and when you get the EOB showing what they paid; then submit the EOB to the secondary carrier and they will determine how much if any, they will pay. In the old days when most plans paid 80%, the secondary would generally pick up the remaining 20%. Now it seems they subtract the primary payment from what they would pay and give you the difference up to
100% of the charge. (That means if both would pay the same amount, then you get nothing from the secondary carrier)

Also, as I understand the medical deduction floor is 7.5% for everyone for 2017 and 2018, but will increase to 10% for everyone in 2019.

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just frank
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Re: Deductible Medical Expenses....

Post by just frank » Sun Apr 29, 2018 9:48 am

Thanks all. The threshold was indeed 7.5% of AGI, correct in 2017 TT, and my deductible medical was below that b/c maybe $10k of my 'counseling' would not have been approved for fed deduction, after a bit of reading.

As per the new question...I think PA also does the birthday thing...so many charges would be my 60% and then her 80%.

I had assumed the repayment of a procedure of actual cost X and insurable cost Y, then

single insurance (hers) gets me: 0.8*Y << X
double insurance (mine, then hers) gets me 0.6*Y + 0.8*(0.4*Y) = 0.92*Y << X

If the amount in question is $15k beyond deductible, then the difference is only $1800, versus an additional $3k to add my policy. :(

Sounds like I should not buy my policy, but I will talk to my Benefits folks (shudder) on Monday.

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