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.

neilpilot
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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

neilpilot
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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.

pshonore
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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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