Wednesday, August 24, 2016


I was reminded this morning that the 7.5% Adjusted Gross Income (AGI) exclusion of medical expenses for taxpayers age 65 or older who itemize on Schedule A will expire on December 31, 2016.  So the 2016 Form 1040 is the last year that seniors can take advantage of this lower AGI exclusion. 
Beginning with tax year 2017 all taxpayers who itemize must reduce medical expenses by 10% of their AGI.
This increased income threshold came out of the Affordable Care Act (ACA), aka “Obamacare”.  The application of the increase took effect for most taxpayers with tax year 2013, but had been postponed for seniors.
This presents a tax planning opportunity for seniors.  If -
(1)  you will be able to itemize for 2016, and
(2)  your 2016 medical expenses will, or have already, exceeded the 7½% exclusion, and
(3)  you think that, based on past tax returns, your 2017 medical expenses will not exceed 10% of AGI
you should look at accelerating medical expense to be able to claim them in 2016.
Pay any outstanding medical bills and schedule, and pay for, prescription renewals, check-ups, doctor visits, elective surgery, and needed dental work before the end of December.
As a point of information, if you will be a victim of the dreaded Alternative Minimum Tax your 2016 medical expenses will only be deductible to the extent they exceed 10% of AGI regardless of your age.
When adding up your 2016 medical expenses be sure to include travel to and from doctors, dentists, clinics, hospitals, therapy, etc. at 19 cents per mile and related parking and tolls.  And check out Kay Bell’s recent post “Tax deductions for allergy-related medical costs” at DON’T MESS WITH TAXES.
My MEDICAL EXPENSE GUIDE provides a detailed listing of what you can deduct as a medical expense on Schedule A - if you are lucky, or unlucky, enough to have enough expenses to exceed the AGI exclusion - plus several worksheets to help you keep track of your deductions.  It is available for $2.00 delivered as a pdf email attachment, or $4.00 in print form sent by postal mail.  Click here for more information.
A complete 2016 year-end tax planning guide will be available in early October.

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