[NA]Tax fun[NA]

[Let'sgoflying!]

My cpa says I cannot deduct any of my medical expenses paid from my personal funds.

But I can deduct say, a steak and wine dinner that I might share with a business associate. Well partially.

Is he full of it, or is the tax code really that screwed up?

(small unincorporated business owner)

 

[alaskaflyer]

My cpa says I cannot deduct any of my medical expenses paid from my personal funds.

But I can deduct say, a steak and wine dinner that I might share with a business associate. Well partially.

Is he full of it, or is the tax code really that screwed up?

(small unincorporated business owner)

Not sure now but it used to be that they were deductible, but only that portion that exceeds some percentage of your adjusted gross income set by the IRS. In other words your expenses had to exceed some artificial threshold before that portion above it would become deductible.

I was uninsured for about eighteen months one time and racked up some fairly significant medical bills (for me, of course that is relative.) But even then I ended up only being able to deduct a few hundred bucks because the total expenses were only a little above that set percentage of my AGI. I'm thinking it was around 7% or so.

 

[gprellwitz]

Well, if you're itemizing, you can deduct medical expenses that exceed a threshold (3% of AGI?), but hopefully you don't have that many medical expenses. Note that this is my recollection, and I am not a tax accountant!

 

[Let'sgoflying!]

that is screwed up then, imo.

 

[Everskyward]

How Much of the Expenses Can You Deduct?

You can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 7.5% of your AGI(Form 1040, line 38).
In this publication, the term “7.5% limit” is used to refer to 7.5% of your AGI. The phrase “subject to the 7.5% limit” is also used. This phrase means that you must subtract 7.5% (.075) of your AGI from your medical expenses to figure your medical expense deduction.
Example.
Your AGI is $40,000, 7.5% of which is $3,000. You paid medical expenses of $2,500. You cannot deduct any of your medical expenses because they are not more than 7.5% of your AGI.

http://www.irs.gov/publications/p502/ar02.html#en_US_publink1000178856

 

[gprellwitz]

that is screwed up then, imo.

Compared to what? The FAA? The TSA?

And thanks Mari for posting the actual percentage. A lot higher than the 3% I misremembered.

Note, Dave, that you can use things like Sec. 125 expenses to use pre-tax money to pay medical expenses, subject to lots of other rules and regulations. And I don't know how it would work for self-employed individuals.

 

[Let'sgoflying!]

Well, I realized I can use pretax $ from my MSA account to reimburse myself.
But the rule is still messed up imo, for all those other people who have bonafide (not recreational) medical expenses.....how about 100% should be not taxed. When you think of the insane things people deduct that are much more reasonably taxed.
Thanks.

 

[skidoo]

It's just another way to re-distribute wealth and to feed the insurance companies. The more you make, the higher the threshold before you can deduct on Schedule A.

You or I can deduct $6150 per year as a contribution to a Family HSA and then use those funds to pay medical expenses. But, in order to do so, I must have a high deductible insurance plan. So, I end up paying over $6000 for an insurance plan with a $10K family deductible. If my family total medical expenses amounted to 9K in one year, I would get to deduct the $6K for insurance premiums, and then the $6150, but my total insurance/med expense would be over $15K. I would still be short almost $3K in deductible expenses.

I would much rather just skip the insurance and pay my expenses that are fully deductible, the way it used to be long ago.

 

[gprellwitz]

Well, I realized I can use pretax $ from my MSA account to reimburse myself.
But the rule is still messed up imo, for all those other people who have bonafide (not recreational) medical expenses.....how about 100% should be not taxed. When you think of the insane things people deduct that are much more reasonably taxed.
Thanks.

Well, it's your income that's being taxed here, of course. Additionally, there are sales taxes on thing you purchase with that income. The sales taxes are often set so they don't hit certain things (like food, medicine) as hard. And the income tax itself is set up so that the first $x aren't taxed at all, (theoretically) allowing for the purchase of necessities. So it could be argued that the money spent on a minimalist existence of food, lodging, and basic medical isn't taxed via income tax. Now, whether $x is set at a sufficient level is another matter altogether.

And what should be considered "bona fide" medical expenses? Generic drugs only? Experimental therapies? Drug trials? Homeopathic remedies? Faith healing? Who decides what a particular treatment qualifies as? Would you want to try keeping all those records? Would you want to trust the IRS with all the medical details?

I understand your angst, but am not sure that the solution is as easy as you would like.