How to Get Tax Mileage Out of Medical Payments

How can clients get the most tax mileage out of their deductions for medical care? What they should do depends, among other things, on how much they expect to report as adjusted gross income and when they send payments for medical care.

Dec 9th 2019
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My clients include a couple I’ll call John and Blanche. Both have serious health problems. They expect to incur sizable medical expenses during this year and the following one.

The couple asks a straightforward question: How can they get the most tax mileage out of their deductions for medical care?

I respond with a straightforward answer: What the couple should do depends, among other things, on how much they expect to report as adjusted gross income, and when they send payments for medical care.

Why? Because they’re entitled to claim deductions only for the portion of payments that exceeds 10 percent of their AGI.  Payments in any single year that fail to top that threshold are nondeductible. So I advise my clients to accelerate payments or postpone them into one year.

I caution John and Blanche to be especially mindful of my guidelines when their payments for the current year are close to, or already over, the hurdle of 10 percent, and they anticipate that they’ll incur charges in the following year.

I remind them that they can schedule many services at their convenience. The possibilities include routine dental cleanings, physical checkups and eye examinations, as well as purchases of extra pairs of eyeglasses or contact lenses.

There’s an easy for the couple to avoid the possible loss of a 2020 deduction for those payments and to boost their 2019 deduction. All John and Blanche need do is have the services performed and pay for them by Dec. 31 of 2019. This strategy is even more advantageous when they anticipate an increase in AGI for 2020 and, therefore, a higher threshold of 10 percent.

To show how the numbers work, I use this example: They’ll have an AGI of $160,000 for 2019 and 2020. Also, they’ll use Form 1040’s Schedule A to itemize their customary write-offs for medical expenditures, contributions, interest payments on their home mortgage and state and local income taxes and property taxes.

Their medical payments will total $16,000 for 2019 and the same for 2020. The 2020 payments include a check for $4,000 that they send in January to take care of a bill for extensive dental work that they receive before 2019 ends. They consequently forfeit any write-offs for 2019 or 2020, because payments in both years fail to top $16,000 (10 percent of $160,000).

I then pivot to a happier scenario: They’ll date the check no later than Dec. 31 and actually drop it in a mailbox in sufficient time for the envelope to be postmarked by midnight Dec. 31. That bit of forethought, which has the blessings of the IRS, will convert a nondeductible payment for 2020 into a $4,000 deduction for 2019. It’ll make no difference that their dentist receives the check after 2019 closes.

I end the discussion with a mention of IRS audits. Suppose agency computers bounce their return. Odds are that an examiner is going to look closely at large year-end checks dated Dec. 31 and made out to, say, charities, doctors and state tax collectors.

My advice: Send such checks by certified mail; request certified mail receipts; and staple them to their canceled checks. The receipts will back up their 2019 deductions for payments made with checks that may not clear the bank until well beyond the close of the year.

There’s also room to maneuver when they use credit cards to pay for deductibles. Credit card payments qualify for 2019 deductions as soon as they authorize charges. This holds true even if the credit card companies don’t bill them until 2020.

Best Wishes Dear Readers for a Happy New Year. I'm someone who keeps creditors at bay and bread on the table only because I've “a certain talent” for articles that demystify the Internal  Revenue Code. In the course of four-plus decades, I've written several thousand articles. They've appeared in print publications, such as Playboy, Reader's Digest and Vogue. And in electronic  outfits, most notably in AccountingWEB, where my articles debuted in April of 2014. Delve into its archive of more than 300 of those articles

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