In general, the people most likely to benefit from the medical expense tax deduction are both those who purchase their own health insurance and the self-employed since self-employed individuals may be able to deduct medical insurance payments for themselves, their spouse and dependents. Health premiums paid for by an employer-sponsored health plan typically cannot be deducted.

How to Calculate the Medical Expense Tax Deduction

If you have an AGI of $45,000, your medical expenses will need to be more than $3,375 in order for you to take the medical expense tax deduction. If your medical expenses total $5,000, you can deduct $1,625 – the amount in excess of the 7.5% income threshold, rather than the full amount of expenses.

Additionally, if your medical expenses exceed 7.5% of your income, you must itemize on your tax return (Form 1040, Schedule A) in order to take a medical expense tax deduction. If the total value of all of your deductions – mortgage interest, property taxes, charitable contributions, medical expenses, etc. – does not exceed the standard deduction, then you will not benefit from the medical expense deduction.

Which Medical Expenses are Tax-Deductible?

Most expenses incurred by medical care that is intended to prevent and treat physical and mental ailments qualify for the medical tax deduction. Eligible expenses typically include the cost of diagnosing, treating and preventing diseases and other health problems, and there are a wide array of products and services that qualify.

According to the IRS, the following medical expenses are tax-deductible:

Illness Treatment & Prevention

Medical expenses related to the treatment of an illness – either physical or mental – or prevention of an illness are tax-deductible. You can claim medical expenses incurred on behalf of yourself, your spouse and your dependents. Preventative care, diagnosis, cures and mitigation expenses all qualify as medical expenses.

Medical Services

Payments made to most doctors, psychologists, psychiatrists, dentists, gynocologists, and physical therapists, as well as the cost of annual eye exams, hospital visits, chiropractic care, acupuncture treatments and nursing homes, are tax-deductible. However, you can only claim the amount that you actually pay, and not the total amount of the bill. If the bill for your doctor visit is $100 but you only pay the $25 co-pay , you can only include the $25 that you actually paid – not the amount that your insurance pays on your behalf.

Qualified Medical Products

The costs of certain medical items are tax-deductible, including:

• Prescription eyeglasses or contact lenses
• Laser eye surgery
• Hearing aids
• Wheelchairs and crutches
• False teeth
• Guide dogs for the deaf or blind.

Alcohol & Drug Treatment

If you are admitted to a center for alcohol or drug addiction, the cost of your inpatient or acupuncture treatment is considered a tax-deductible medical expense. You can also deduct any money that you spend on doctor-prescribed medications that are intended to help you stop smoking or to alleviate symptoms caused drug and nicotine withdrawal.

Weight-Loss Programs

If your doctor recommends a weight-loss program after a diagnosis for a certain disease or for obesity, you can deduct the cost of the program; however, you generally cannot deduct diet food or health club dues.

Medical-Related Transportation

You can also deduct the cost of transportation to and from medical care facilities through one of the following methods:

• Public transportation
• Gas and oil for your vehicle
• Standard mileage deduction for all of your medical travel, which includes tolls and parking expenses.

Health Insurance Premiums

You can include health insurance premiums that you pay for yourself, but not those premiums withheld from your paycheck, since health insurance premiums paid through paycheck withholding are already done on a pre-tax basis.

Medical Conferences

If you attend a medical conference related to a chronic disease or disorder that you, your spouse or one of your dependents is suffering from, and attendance is essential to that individual’s treatment, you may deduct admission and transportation expenses. However, neither not meals nor lodging costs associated with the conference are tax-deductible.

Which Medical Expenses are NOT Tax-Deductible?

The following medical- and dental-related expenses are not eligible for the medical tax deduction:

• Cosmetic procedures
• A trip or program for the general improvement of your health
• Nicotine gum and Nicotine patches purchased without a prescription
• Funeral or burial expenses
• Over-the-counter medicines
• Meals and lodging expenses incurred at medical conferences
• Toiletries, including toothpaste and cosmetic products.

Additionally, any reimbursement reduces your deductible expense. This includes both reimbursements paid directly to you as well as those paid directly to a medical care facility.

2011 Tax Law Changes

Healthcare law changes for 2011 mean that Health Reimbursement Accounts, Health Savings Accounts and Flexible Spending Accounts may no longer be used to purchase non-prescription medications. Additionally, a new tax has been imposed on brand name pharmaceutical manufacturers – an expense that will be passed on to the consumer.

More Information

Additional information about medical tax deductions can be found on the IRS Website. To learn more about who will qualify as a dependent for the purpose of a medical tax deduction, view Publication 502, Medical and Dental Expenses.

This guest post was provided by Manny Davis. His website contains a frequently updated tax advice blog with tax news, tax changes and tax saving tips, as well as detailed guides of tax solutions to help taxpayers through various tax-related problems.

LL

Susan

Little Miss Money Bags

Winner’s will be sent their codes shortly.   Below is a screenshot of the random numbers generated to select the winners.

Happy Taxes!

How to use code:

Prepare your tax return online at TurboTax.com using TurboTax Premier 2010 2) In the Print and File section, when you get to the screen that says “Review your TurboTax Fees” click on the link at the bottom of the page that says “Enter Pre-Paid Code” 3) Enter the Pre-Paid Code above.

Terms and Conditions

This code is redeemable at TurboTax.com and good for one free federal + state preparation and e-file with TurboTax Premier Online 2010.  This code can only be redeemed once and is only valid through the 2010 tax season.  Codes may not be redeemed for cash and are not for resale.  Lost or stolen cards will not be replaced.

Well, the good news for you all is that the fine people over at Intuit have given me three promotion codes to give away to some lucky readers.

So here is what you have to do in order to win a free eFiling:

Go and leave a comment on this post saying one of three things (please include your email so I can contact you):

1. What you are planning to do with your refund.
2. Tell us if you have used TurboTax before (I am curious as to how people file their taxes).
3. Just say “Hello” and that you want to win.

It’s as easy as that.  Today is Friday the 18th.  I will pick the three winners next Friday the 25th and contact each of them individually.  By entering, you allow me to post your name (or whatever name you use in the comment section) when I announce the winners sometime after the 25th.  Also, be on the look out for future giveaways as the Intuit folks have given me some other codes to use in the future.

Good Luck!

_________________________________

How to use code:

Prepare your tax return online at TurboTax.com using TurboTax Premier 2010 2) In the Print and File section, when you get to the screen that says “Review your TurboTax Fees” click on the link at the bottom of the page that says “Enter Pre-Paid Code” 3) Enter the Pre-Paid Code above.

Terms and Conditions

This code is redeemable at TurboTax.com and good for one free federal + state preparation and e-file with TurboTax Premier Online 2010.  This code can only be redeemed once and is only valid through the 2010 tax season.  Codes may not be redeemed for cash and are not for resale.  Lost or stolen cards will not be replaced.

10. Depreciation on Breeding Animals

If you breed dogs as a full or part-time business, you can claim depreciation on the breeding animals. The current U.S. tax code allows depreciation for breeding stock such as show dogs and race horses. You must intend to sell the offspring in order to claim this deduction. Additionally, you can only depreciate the breeding male and/or female, but not the offspring.

9. Business Travel

Travel expenses may be written off if they pertain to your business. When one is attending a conference or business meeting, this may be taken off. You will need to be able to show proof that business was conducted during this trip though. Don’t mark off your second honeymoon weekend to Boston with your wife. If your spouse is a business partner or employee though, they can travel with you and their expenses may be written off as well as half of their meals. Be sure to save all receipts.

8. Disaster Related Expenses

Last winter was rough for many parts of the country. Casualty deductions may be claimed if the president declared your area a designated disaster area. Any losses you incurred as a result of the disaster may be claimed on your return. Remember this for the future also as you never know when Mother Nature may strike.

7. Tax Preparation Fees

Tax planning is a big part of any business. In order to make the largest profit, you need to pay the minimum in taxes. Often investment and tax planning expenses are overlooked at tax time though. These qualify as itemized expenses as long as they are more that 2% of your adjusted gross income before you receive any tax benefit. Expenses you should include are tax preparation fees and employee business expenses. As a small business owner, every penny counts and this is a great way to put some back for a rainy day. Don’t forget safety deposits boxes, magazine subscriptions and long distance phone calls as they may all be deducted also.

6. Home Office Expenses

Home office deductions are a must for any small business owner operating out of his or her home. Everything can be marked off as long as it is used solely for business. If you use your computer or any other item in this office for personal use, you will need to calculate how much time the item is used for personal reasons and how much time it is used for the business. If you rent an apartment, a portion may be deducted for home office use also.

5. Home Refinancing Costs

When operating out of your home, remember to deduct points when you refinance your home. Points that are paid on a refinance may be deducted over the life of the loan. Although this may not seem like a great deal, over time it adds up. Small deductions like this, taken together, can make a huge difference on your tax burden.

4. Health Insurance Premiums

Those who are self-employed can mark off 100% of health insurance premiums. You don’t have to itemize to claim this deduction either. As long as you are not covered by an employer paid plan, you can take this deduction.

3. Travel Expenses for Military Reservists

Those who are in the military reserves can take a deduction for travel expenses. Your trip must be more than 100 miles from home and overnight to qualify. Not only can you deduct the cost of your lodging, but half of your meals also as well as wear and tear on your vehicle. Parking fees and tolls may also be deducted.

2. Hobby Related Expenses

If you have a hobby and sell the fruits of your labor, you may be able to deduct expenses here also. You can only deduct as much as you made, but it will help in the long run.

1. College Fees

Finally, if you go back to school to further your career, these expenses may be marked off. You must make less than $65,000 a year if you file single and $130,000 a year if you file jointly. Up to $4,000 may be deducted here.

Tom writes for Money Choices, an Australian reviews website where he writes about business bank accounts and other financial services for Aussie businesses.

When filing your taxes this year you should be aware of some of the most common tax mistakes that people make. Making even one error can cause you a larger tax bill, a smaller return, a delay in your refund or set you up for a dreaded IRS audit. Before sending in your returns make sure to check for the following: 

Math Errors
Double and triple check your math. While more and more people are using tax preparation software that automatically does this for you, surprisingly a good number of people are still filing their taxes the old fashioned way onpaper. One of the most common mistakes people make when filing their taxes is in the math.

Personal Information
Make sure you have entered the correct social security numbers, the correct address and correct filing status. Believe it or not some people will even forget to fill in this information all together. Incorrect or missing information can cause a huge delay in your return.

Refund Information
If you are receiving a refund and opt to have your money directly deposited into your account, make sure you have the correct account and routing number. Being just one number off can cause you a huge headache.

All Required Documentation
Make sure that you have included with your return all required documentation like your W-2’s and 1099’s. If the IRS cannot verify your information they will not be able to process your return. Along with this always make surethat you have back up documentation for all deductions and credits you are claiming.

Deductions and Credits
Take the time to know what deductions and credits you are entitled to. Every year tax payers miss millions of dollars in deductions that they have a right to. Some of the most common ones that are missed are children and other dependents, child care, student loan and tuition deductions, moving expenses and alimony or child support payments.

Charitable Contributions
Be careful when it comes to your charitable contribution deductions. While it is important to take the deductions that you are entitled to, this area is often abused and can be a red flag for tax audits. Make sure you only claim charitable contributions that went to legitimate organizations that are tax exempt. Also be careful in calculating the amount of charitable donations like clothing and household items. New regulations require that theseitems are in good or better condition. Make sure you always get a receipt and do not claim anything you do not have a receipt for. If you donate any one item with a value over $200.00 you will need the charitable organizationto write you a letter.

Income Reporting
Double check and make sure you have reported all of your income. Failure to report all of your income can be a costly mistake that you will want to avoid. Make sure you include all earnings even those you did not receive a 1099 for.

Business Deductions
If you own a business be careful about your business deductions. Make sure you claim only expenses that are ordinary and necessary for your business. Also, if you plan to write off mileage for you business, make sure you havea mileage log for the year with accurate documentation. Finally, keep a copy of your return and documentation of all deductions. If you are audited you will want to have all this information ready and available at your fingertips.

Taxes are a bitch, all of us know this.  No one like paying them, and few of us like doing them.  I don’t know about you, but at times the language in my 1040A serves to make me feel like a moron.  Then there are state taxes and county taxes.  Considering I am young, have no kids, and could really give a shit where I live, I am certainly not a fan of paying these.  However, we must.

With a little more than two months before the tax-filing deadline, a lot of people are still in procrastination mode.  This can be disastrous, especially if you are about to get hit by a big tax bill in April.  Having the upcoming pay periods available to you to save could be the difference between going into debt paying your taxes or enjoying a late spring break in April with all of your friends.

Right here I am going to give you a quick ten minute tutorial on how to estimate your taxes with a 90% accuracy and only using 7 numbers in 8 easy steps.  No, it won’t have every deduction there is calculated into the math, but it doesn’t need to.  You can find a free tax calculator online for more precise figures. But, we are just going to ballpark, so you don’t feel hit over the head when you find out your tax bill is $2500 this year (as I did last week).

The Math

The only piece of paper you will need is your W2, the rest you can find on your computer easily and then a scratch pad to do some quick math.  Lets get started

Step 1: Write down the total from Boxes 2, 17 and 19 on your W2 and add them together.  Put that number aside and we will come back to it later.  For simplicity, label it A.

Step 2: Look at the number in Box 1 of your W2.  Now subtract $9000 from it (this is an estimate of the standard deduction.  It’s a bit high, but it’s likely you will have other deductions, and we are also just ballparking here)

Step 3: If the number from step 2 is less than $25,000, multiply by .15 (or 15%).  If its over that number, multiply by .25 (or 25%).  (If you are in anything higher than the 25% bracket, odds are you have an accountant doing this for you, so I am going to exclude you all from this… sorry guys)  Keep this number on the side and label it B.

Step 4: Find out your state and local tax percentage.  For me, state was 4.75% and county was 3.2% (Ouch – Damn Maryland and Montgomery County!)

Step 5: Add the two numbers from step 4 together.

Step 6: Multiply the percentage from Step 5 against the number you pulled in Step 2 (this will be slightly off because that $9,000 deduction will be different for state taxes, but it’s close enough for government work) Keep this number on the side and label it C.

Step 7: Here is where the addition comes in.  Add number B and number C (steps 3 and 6).  Call this number D.

Step 8 (Final Step): Compare number D to number A.  If number A is greater (taxes you have already paid), likely you will be getting a refund.  If number D is greater (your tax liability), you are gonna have to owe some money, and I will guess its pretty close to that amount.

Disclaimer: This simple trick to figuring out a quick estimate of what you are likely to owe is not 100% accurate.  If you have several deductions, a large amount of investments, own a home or have children, this is not going to work for you.   However, if you are like me, single (or at least filing single), rent, make less than $90,000 a year and don’t have any children, I am willing to guess this number will be close to your tax outcome for the year.  At worst, it’s overstated which means you can be pleasantly surprised when you do actually put your taxes together.  Start saving now to lessen the hit (if there is one) come April.

What people are saying:

With a democrat in office, people are fearful of having their taxes raised or of having new taxes levied upon them.  A lot of people view the Roth IRA as an investment vehicle that is too good to be true (tax-free growth).  Because of this, people have started to assume that Roth IRAs are a potential target for new taxes (this could be capital gains taxes or having your withdrawals taxed as income similar to a traditional IRA).  This obviously has Roth IRA contributor’s up in arms and has scared away people from taking advantage of the Roth as their investment vehicle of choice (way to go media hysteria!)

Why I think this is dumb (a policy analysis):

I am not a policy expert, but I have studied public policy extensively, and in particular, tax policy.  This notion, that Roth IRAs may be taxed in the near future is just plain dumb.  The primary reason for a new tax in this economic environment is to create revenue and to help shrink the deficit.

• Firstly, for those that have been paying attention, the government has already found a way to raise revenues with regards to the Roth IRA; by allowing anyone, regardless of how high their income is, to transfer their Traditional IRA funds into a Roth IRA.  If you make this conversion, you are required to pay the subsequent income tax on the transfer (this is the government raising its revenue in the short-term, by offering you tax-free growth over the long-term).
• Secondly, taxing the withdrawals from a Roth IRA isn’t going to raise much revenue because so few people have begun to withdraw money from this type or retirement account.  Roth IRAs are such a new investment vehicle; the majority of people taking advantage of them are in their 20s, 30s, 40s and young 50s.  The government would get no immediate revenue from these people.
• Thirdly, if they taxed the capital gains of a Roth IRA, the government still wouldn’t see much revenue in the immediate future as no one has done well in the market over the past year or so.  If the economy was to turn around tomorrow, maybe this would make sense, but let the government tax your Roth capital gains, and they aren’t likely to see a dime next April.
• Fourthly, if the rules of the Roth were changed, you will have a lot of pissed off voters on all ends of the political spectrum that expected the government to stick by their word when they created the Roth as a tax-free growth vehicle.  If there is one thing politicians don’t like to do often is pissing off voters.

Why you shouldn’t care:

Don’t believe the hype! You shouldn’t change your opinion of the Roth IRA because of speculative discussions in the media about potential changes in the tax laws.  Right now, a Roth IRA is the best place for you to save for your retirement.  Don’t let the speculation of the media dupe you into thinking that in 5, 10, 15 years they may change the rules behind the Roth and thus make it not worth your effort to use a Roth as an investment vehicle now!  We are not fortune tellers and we can’t foresee the future.  However, we, as individuals, see the present and the rules as they are currently written.  As it stands now, the Roth IRA is the best way to get tax-free growth over a long period of time when saving for retirement.  Focus on how the game is set up today, and play it accordingly.

Living in fear of what the government “might” do in the future is no way to live at all.  Its unlikely the rules of the Roth IRA will change in the near future, please ignore the media hype as the media attempts to make you fearful of the government; the government that is coming for your money that was supposed to be tax-free.