The answer to most tax questions is “It depends.” I recently got a question regarding whether a spa would be deductible as a medical expense. And the answer is “it depends.”
In order to prove you have a medical deduction for a therapy equipment, you need a letter proving that you have a condition that requires the therapy and that your Dr will prescribe the spa.
That gives you a medical expense, but now we have to look at whether you can deduct it. If you claim it on your personal Form 1040 as a medical expense, the amount that is deductible as a Schedule A Itemized Deduction is only what is over 7.5% of your adjusted gross income. And, of course, that assumes that you itemize. The standard deduction is much higher now, so a lot of people are no longer itemizing.
If your AGI is $100,000, you’ll only get to deduct the medical expense that is over $7,500.
A Better Way to Deduct Medical Expenses
If you have a business, there may be a better way to deduct your medical expenses. It’s possible to deduct the medical expenses as a business deduction that is 100% deduction. But there are only two business structures you can use to make this possible.
Schedule C (Sole Proprietorship) Medical Expense Reimbursement Plan (MERP)
If your business operates as a Schedule C (Sole Proprietorship), you can set up a MERP (medical expense reimbursement plan) so that all employees can have medical expenses reimbursed. As the owner/proprietor of a Schedule C, you can’t be an employee. But if you’re married, you can employee your spouse. Of course, remember you have to include all employees in the same plan. Make sure you take that into account before you put the plan together.
The expenses that are reimbursed to the employee are 100% deductible for the business.
C Corporation Medical Expense Reimbursement Plan (MERP)
If your business operates as a C Corporation, you can set up a MERP so that all employees are covered by the plan. Unlike the Sole Proprietorship, shareholders (owners) of a C Corporation can be employees. You can set up the MERP to reimbursement your medical expenses. However, remember that a MERP has to cover all employees. That can be a concern if you have a large workforce.
An owner of a partnership or an S Corporation cannot be part of a MERP. The only two possible entities are Schedule Cs or C Corporations for a business owner.
The best tax strategies are always for business owners. But not every business tax strategy will work for you. We all have unique circumstances. The more you know (and your tax professional knows), the less tax you’ll pay.