What medical expenses are deductible? How can your business take a deduction? Does it matter what business structure you have if you plan to set up a medical expense reimbursement plan? I got a lot of questions after publishing “When Can You Deduct a Spa On Your Tax Return?”
How Do You Deduct Medical Expenses?
There is often confusion about medical insurance and medical expenses. In some cases, medical insurance is part of medical expenses. And in other times, it’s reported separately. But it is important to be clear that they are two different type of expenses.
Medical expenses include things like items not covered by medical insurance, co-pays, dental, vision and the like. Medical insurance is the premium you pay for insurance to cover some future medical expenses.
The most common way to take a deduction is on Schedule A as part of your itemized expenses. If you don’t itemize your deductions, then you won’t get that deduction. In 2020 and 2021, the amount over 7.5% of your adjusted gross income (AGI) is part of itemized deductions. But it only counts if you itemize. If you use the standard deduction, it’s not deductible.
Medical insurance is an expense for businesses provided the insurance is nondiscriminatory. In other words, all eligible employees can have the insurance. They may voluntarily opt out, but they have to be given the choice.
Medical expenses, however, are only deductible for owners if the owner has a Schedule C business (Sole Proprietorship) and the spouse is employed in the business or the owner has a C Corporation. The plans must be nondiscriminatory, so all eligible employees can have the plan as well.
You also need a Medical Expense Reimbursement Plan (MERP) for the medical expenses to be deductible.
What is a Deductible Medical Expense?
The IRS allows you to deduct preventative care, treatment, surgeries and dental and vision care as qualifying medical expenses. You can also deduct visits to psychologists and psychiatrists. Prescription medications and appliances such as glasses, contacts, false teeth and hearing aids are also deductible. You can deduct co-pays if your insurance covers most of the expense. And you can deduct therapy treatments, such as a spa, if you have a prescription from your doctor.
You can’t take a deduction for over the counter (OTC) drugs. Other than that, if your doctor prescribes it, it’s probably a deduction.
Some Unusual Medical Expenses You May Not Have Realized Were Deductible
Alternative treatments like acupuncture.
Adaptive equipment. The costs of wheelchairs, shower chairs, bedside commodes, and other items needed for a disability or medical condition are deductible.
Baby expenses such as breast pumps and other nursing supplies. If the baby formula is prescribed, it is covered as well as a medical expense.
Diabetes-related costs. Blood-testing kits, including blood strips and batteries, are deductible. Insulin is as well.
Eye- and ear-related conditions. The cost of eye exams, contact lenses, contact lens insurance, and prescription glasses (including sunglasses) is deductible. So are eye surgery (LASIK) and Braille books. For those with hearing issues, the cost of exams, hearing aids and batteries for them are deductible.
Home improvements. If you install permanent features to accommodate a disability, such as wheelchair ramps and handrails in bathrooms, the cost is fully deductible.
Lodging when traveling to receive medical treatment. However, meals while you travel to get medical treatment are not deductible.
Medical conference costs. The cost of admission and transportation to a conference on a chronic condition that the taxpayer or a spouse or dependent suffers from is deductible. The cost of meals and lodging expenses are not deductible.
Organ transplants. The organ recipient’s costs are deductible, as are the expenses for the donor (including testing, hospital stay, and transportation).
Personal attendant costs. Generally, the deductible portion of a personal attendant’s costs is limited to personal assistance with daily routines and does not include the cost of house cleaning and other chores, although this may be hard to separate out, realistically speaking. The cost of meals for a personal attendant may be deductible.
Rehab treatment programs. The cost of in-patient and out-patient treatment programs for alcohol, drug addiction, and other medical problems is deductible.
Reproduction-related costs. This includes the cost of birth control pills, pregnancy test kits, abortions, vasectomies, and fertility treatments.
Service animals. Deductible costs for service animals include not only their initial price tag, but also their food, training costs, and vet bills. (This is only for legitimate service dogs.)
Sex-reassignment surgery and hormone therapy to treat gender identity disorder (GID). These treatments are deductible. However, the cost of breast augmentation surgery, even as part of a gender transition, may not be deductible.
Smoking-cessation programs/efforts that are doctor prescribed are deductible. Over the counter remedies are not deductible.
Special diets. Doctor-prescribed foods to treat a medical condition such as celiac disease, obesity, or hypertension, may be partially deductible. Only the cost that exceeds the cost of regular foods is deductible.
Special-education costs. The cost for programs that address diagnosed physical, mental, or emotional conditions like dyslexia, ADHD, or autism are deductible.
Travel costs to doctors, pharmacies, therapy sessions, etc. You can deduct the cost of cab fare or public transportation. If you use your personal vehicle, use an IRS-set mileage rate. The rates are set at 17 cents per mile for tax year 2020 and 16 cents per year for tax year 2021.
Weight-loss programs. If a doctor can confirm that your current weight is a threat to your health, any weight-loss program that is prescribed is deductible.
Wigs for cancer patients. People with hair loss due to a medical condition like alopecia or cancer treatments like chemotherapy can deduct the cost of a wig.
What’s deductible? With medical expenses, just like business deductions, the answer is “it depends.” In most cases, it has to do with things that require a Dr prescription. If you’ve got a question, ask your tax preparer or you can go to Wednesday Coaching to learn more about deductions, business structures and other important topics for your business and real estate investments.