Tax Tip: Add on Medical Expenses for a Nondependent
by AccountingWEB on
By Ken Berry
This is the eighth article in our series of tax return tips for 2011 returns.
It's often difficult for taxpayers to qualify for medical expense deductions – but not impossible. Although the annual threshold is daunting, clients often overlook or ignore deductible expenses that can help pad their total. A prime example: medical expenses paid on behalf of a relative who isn't a tax dependent.
Let's start with this basic premise. On 2011 returns, a taxpayer can deduct only those qualified medical and dental expenses in excess of 7.5 percent of adjusted gross income (AGI). For instance, if the taxpayer has an AGI of $100,000 and incurred $7,000 of unreimbursed expenses during the year, he or she gets no medical deduction. Even worse, the threshold is scheduled to rise to 10 percent of AGI in 2013.
Of course, tax filers can count the medical and dental expenses paid on behalf of a spouse or dependents, like young children, in their grand total. What about an elderly relative a taxpayer helps support?
On 2011 returns, a taxpayer can deduct only those qualified medical and dental expenses in excess of 7.5 percent of AGI. Even worse, the threshold is scheduled to rise to 10 percent in 2013.
Usually, you can claim a dependency exemption for a relative only if you provide more than half of the relative's annual support and his or her gross income doesn't exceed the personal exemption amount ($3,700 for 2011). But there's a slight wrinkle in these rules for "medical dependents." The IRS says in Pub. 502, Medical and Dental Expenses, that you can include medical expenses paid for the relative if you pass the half-support test – even if you can't claim the relative as a dependent because of the gross income test.
Example: Suppose a client's elderly mother received $10,000 in Social Security benefits and $4,500 of taxable investment income in 2011. The client gave mom $1,000 a month for rent and also paid $3,000 of her out-of-pocket medical bills. So the client provided more than half of her support ($15,000 versus $14,500). But the client still can't claim mom as a dependent for 2011 because her taxable income exceeded the $3,700 limit.
In this case, your client can add the $3,000 paid for mom's medical bills to his or her other qualified medical and dental expenses. The extra amount might be just what the client needs to surpass the 7.5 percent of AGI threshold. And, if the client already qualified for a medical deduction in 2011, the entire annual medical payment for mom is deductible.
You may like these other stories...
Ernst & Young 2013 audit deficiency rate 49%, regulators sayMichael Rapoport of the Wall Street Journal reported on Thursday that the Public Company Accounting Oversight Board (PCAOB) found deficiencies in 28 of the...
Some of your clients may get away to business conventions from time to time. It gives them a chance to rub shoulders with colleagues, catch up on the latest developments, and fine-tune their skills. And, when the meetings or...
PwC must face $1 billion lawsuit over MF Global adviceA federal judge on Wednesday ordered PricewaterhouseCoopers (PwC) to face a $1 billion lawsuit claiming that its bad accounting advice was a substantial cause of the...
Upcoming CPE Webinars
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Transfer your knowledge and experience to prepare your team for the challenges and opportunities of an accounting career.
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.