Tending to Your Taxes

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Tax time, whether you live on Park Place or on Baltic Avenue, is always a flurry of paperwork, receipts, and forms. Navigating the paperwork can be a daunting task, but keeping good records and being prepared for your filings can help make tax time less taxing.

For a person living with diabetes, it’s important to remember that some medical expenses can be deducted when you file your return. Medical supplies like blood glucose meters, test strips, oral medications, insulin, insulin pumps, and other maintenance supplies can really take a bite out of your budget! Medical expenses, according to the IRS website, are “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include costs of equipment, supplies, and diagnostic devices needed for these services." Many of your diabetes-related expenses can be deducted on your tax return.

Here are some tips on managing your medical deductions:

What's new?
There are a few health- and medical-related tax changes you should be aware of as you prepare your taxes:

• Standard mileage rate - The standard mileage rate allowed for operating expenses for a car when you use it for medical reasons is 19 cents per mile from January 1–June 30, and 23.5 cents per mile from July 1–December 31, 2011.
• COBRA Continuation Coverage - If you involuntarily lost your job between September 1, 2008, and March 31, 2010, you may qualify for a 65% reduction in premiums for COBRA continuation coverage for up to 15 months. The 65% is not taxable for federal income tax purposes. The premium reduction is not included in your gross income. You cannot claim the health coverage tax credit for any month that you receive this premium. Also, certain TAA-eligible and PBGC recipients qualify for an extension of COBRA benefits.
• Health Coverage Tax Credit - If you paid premiums for qualified health insurance coverage, you may be able to claim the Health Coverage Tax Credit (HCTC). If you are eligible you can get monthly HCTC, a yearly HCTC, or a combination of these methods. For 2011, the HCTC is 80% of the payments made in January and February; it is 72.5% of the payments made in March through December. Participants who received a monthly payment for any months from March through December are now eligible to receive an additional 7.5% retroactive credit.
• Health Flexible Spending Arrangements (FSAs) - Beginning March 30, 2010, coverage and reimbursement is allowed for an employee's child under age 27 at the end of the employee's tax year.

What can you include?
You can include only the medical and dental expenses you paid this year, regardless of when the services were provided. (See Publication 502 for exceptions.) You cannot include medical expenses that were paid by insurance companies or other sources. The following are some medical expenses that are deductible:

• Acupuncture
• Ambulance
• Annual Physical Examination
• Artificial limb
• Artificial teeth
• Birth control pills
• COBRA continuation health coverage
• Dental treatment
• Diagnostic devices (i.e. blood sugar test kit)
• Eye surgery
• Insurance premiums you pay for policies that cover medical care
• Laboratory fees
• Long term care services
• Medicare A, B, and D
• Medicines
• Nursing services
• Operations (excluding cosmetic procedures)
• Transplants
• Weight loss programs (if weight loss is necessary to treat a diagnosed condition)
• Wheelchair

The following are some examples of items that are not deductible:

• Baby-sitting services for healthy baby
• Controlled substances
• Cosmetic surgery
• Flexible spending account (FSA)
• Health club dues
• Health savings account
• Insurance premiums
• Nonprescription drugs and medicines
• Nutritional supplements
• Weight loss programs (to improve appearance, general health, or sense of well-being)

You may not deduct insurance premiums for life insurance, for policies providing for loss of wages because of illness or injury, or policies that pay you a guaranteed amount each week for a sickness. In addition, the deduction for a qualified long–term care insurance policy's premium is limited.

How much can you deduct?
You can deduct only the amount of your medical and dental expenses that is more than 7.5% of your adjusted gross income (found on Form 1040, line 38).

For example, if your adjusted gross income is $40,000, 7.5% of that amount would be $3,000. If you paid medical expenses of only $2,500, you cannot deduct any medical because your amount paid does not exceed 7.5% of your gross adjusted income. On the other hand, if you paid in medical expenses of $4,300, you can only deduct $1,300.

Who can you include?
You can include medical expenses you paid for yourself, your spouse, or any dependents.

How do you treat reimbursements?
You can only include in medical expenses those amounts paid during the tax year for which you received no insurance or other reimbursement. For insurance reimbursements, you must reduce your total medical expenses for the year by all reimbursements for medical expenses that you receive from insurance or other sources during the year. This includes all payments from Medicare. If you are reimbursed more than your medical expenses, you may have to include the excess in income.


SOURCES:

Internal Revenue Service. Publication 502, Medical and Dental Expenses. (Accessed 03/11).


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