The IRS severely limits tax relief for medical expenses. It prohibits taxpayers who claim the standard deduction amounts from writing off medical expenditures. To do so, they must itemize on Schedule A of Form 1040. The agency also requires the payments not be for bills that are covered by insurance, reimbursed by their employers or otherwise satisfied.
The big hurdle is that the expenses are allowable only to the extent that their total in any one year exceeds 7.5 percent of the individual’s adjusted gross income (AGI). So an AGI of $100,000 means no deduction for the first $7,500 of medical expenses.
It should also be noted this threshold is just for 2018. The Tax Cuts and Jobs Act increases the threshold to 10 percent for the years 2019 through 2025.
Fortunately, there are a few ways for your clients to save money.
Assuming they incur costs that surpass the threshold, an often-overlooked outlay begins as soon as they leave home. Accepted deductibles include travel for medical reasons to and from doctors, clinics, hospitals, pharmacies and the like. When your clients travel to and from their treatments by planes, trains, buses or taxis, remind them to just make sure they keep track of the fares and claim them as medical expenses.
If an individual uses their own car, they have two options for handling the expenses. They can either claim the actual costs of gas and oil (but not depreciation on the vehicle) or use a standard mileage rate, with a separate deduction for parking fees and bridge or highway tolls.
The IRS annually revises the standard rate. It’s 18 cents per mile for 2018, up from 17 cents for 2017 and down from 19 cents for 2016.
If the client’s medical mileage tends to be small, as is usually the case, I recommend using the standard rate for convenience. “Car,” as defined by the IRS, includes a van, pickup, panel truck or motorcycle.
An example: To obtain medical care during 2018, you drive 1,000 miles (at $0.18 per mile) and pay $100 for parking charges and bridge tolls. Your allowable deduction: $280.
It’s advisable, in the event the IRS questions deductions for medical travel, to be able to substantiate them with, for example, a glove-compartment diary in which it’s noted why and how far you went, as well as what you spent on parking. There’s no requirement for taxpayers to use the same car each time.
Also, you’re free to use more than one car at the same time. If you rent an auto and drive it just for medical travel, include the entire rental charge with your other medical expenses.
A final note: Don't forget to tell clients to drive within the speed limit. The IRS refuses to go along with a medical deduction for a traffic ticket. This holds true even if you were racing the stork to the hospital.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 275 and counting).
About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.