Medical Expenses

           

          

          

                             Medical Expenses

          

          

          38) A critical strategy for maximizing medical expense

          deductions is known as "bunching." The idea is to pay

          as many medical bills in one year as possible.  The

          7.5% floor on medical expense deductions requires this

          tactic.  Once your medical bills for the year exceed

          the floor, all expenses above that amount are fully

          deductible.  So you want to make payments that year

          whenever possible instead of waiting until next year

          when you must start trying to exceed the floor again.

               When emergency care and necessary surgery occur,

          you can do little to change the timing.  But you can

          influence elective surgery and continuing care

          expenses.  The first step is to determine how likely

          you are to exceed the 7.5% floor this year.  If you are

          unlikely to exceed it, then you want to defer whatever

          payments you can.  Put off any elective treatments and

          when possible avoid paying bills until after December

          31st.  In a year where you are likely to exceed the

          floor, you want to pay all the expenses that you've

          been deferring or considering.

               For instance, if there is an elective surgery that

          you've been considering, have it done only in a year

          when you think the floor will be surpassed.  When you

          pay for long-term care such as a nursing home, try to

          prepay for two years at a time or whatever you can

          afford.  If you visit a doctor in December, be sure the

          bill is paid by December 31st.  Most importantly,

          examine this report thoroughly for deductible expenses

          that you might have overlooked.

               With bunching, you generally adopt a two-year

          strategy.  One year you pay all the expenses you can

          and take the deductions.  The following year, unless

          unexpected expenses come up, you pay only the expenses

          that must be paid because you probably won't exceed the

          7.5% floor for deductions.

          

          39) One way around the floor on medical expense

          deductions is to reclassify your medical expenses as

          something else.  For instance, if a nurse must be hired

          to look after your spouse or a dependent so you can go

          to work, consider taking the dependent care credit

          instead of the medical expense deduction.  When an

          attendant is needed to take you to work or accompany

          you on business trips, you should try deducting the

          cost as a business expense.  In one case a psychiatrist

          was encouraged by the directors of his residency

          program to undergo psychotherapy.  They said the

          treatment would not only solve his personal problems

          but would make him a better psychiatrist.  Rather than

          treating the cost as a medical expense, the doctor

          chose to treat it as a business education expense, and

          the Tax Court agreed.  (Porter, 86 TC No. 13 (Feb. 13, 1986)).

          

          40) You can pay your parents' medical expenses with

          their cash and take the deductions yourself.  If your

          parent makes an unconditional gift to you, the money is

          then yours.  It is not taxable income.  You can use

          that money however you want to, and if you want to pay

          your parents' medical bills that's fine.  You'll be

          paying the expenses with your money.  When the parent

          is your dependent, you can take the medical expense

          deduction.  One taxpayer got a power of attorney from

          the parent and shifted funds from the parent's account

          to his whenever bills had to be paid.  After the money

          was deposited in the son's checking account, it became

          his.  He paid the medical bills and was entitled to

          deduct the expenses.  An important point is that the

          money must be transferred to your personal checking

          account before the bills are paid.

          

          41) The cost of a health club membership can be

          deductible.  The way not to get the deduction is to

          claim that your employer requires you to stay in

          excellent physical shape, as a police officer found

          out.  (Revenue Ruling 78-128).  But you can get the

          deduction if the membership is prescribed by your

          doctor to treat a specific physical ailment, such as

          high blood pressure or arthritis or to rehabilitate an

          injured body part.  Get the doctor's order in writing

          and don't be buffaloed by IRS employees who try to tell

          you it's not deductible.  But note that the membership

          must be part of the treatment for a specific problem. 

          If the doctor orders you to lose weight or improve your

          overall physical condition, it is not a deductible

          expense.

          

          42) All or part of the cost of a nursing home can be

          deductible.  If a principal reason for placing someone

          in the nursing home is to obtain full-time medical

          care, the entire cost of the home is deductible.  (Reg.

          Sec. 1.213-1(e)(1)(v)(a)).  Even when you don't meet

          this test, you can still deduct the portion of nursing

          home expenses related to medical care.  The nursing

          home should be able to give you an itemized breakdown

          of the portion of the cost that is related to medical

          care or provide an estimate that will be acceptable to

          the IRS.  If you pay the expenses on behalf of someone

          who is dependent, the expenses are deductible to you. 

          But if you make a lump sum payment for lifetime care,

          the expense cannot all be deducted in the year of

          payment.  It must be deducted equally over the expected

          lifetime or some other period.

          43) Personal mileage related to medical care is

          deductible.  Your mileage incurred on trips to and from

          your doctor's office or other place you receive medical

          care are deductible miles.  The trip must be

          essentially and primarily for medical care.  (Reg. Sec.

          1.213-1(e)(l)(iv)).  You can take the standard mileage

          rate of nine cents per mile or deduct actual expenses. 

          With these trips you cannot deduct depreciation and

          repairs, as you can for business mileage.  That's why

          the mileage rate is lower than the business standard

          mileage rate.  Any rides you give to a dependent that

          are related to medical care are deductible.

          

          44) Overnight lodging can be a deductible medical

          expense.  When a trip is taken primarily for medical

          care and is essential to the care, you can deduct the

          cost of overnight lodging.  The medical care must be

          performed by a physician at a licensed hospital or

          equivalent medical care facility.  If the medical care

          is for a dependent and your presence is needed to

          approve operations or for some other reason, the cost

          of your lodging is deductible.  The deduction is

          limited to $50 per night, and meals are not deductible.

          

          45) Don't miss out on these little-known medical

          expenses.  Many taxpayers are incurring deductible

          expenses without knowing it.  Here is a list of the

          deductible expenses and the authority for deducting

          them.

               *    Acupuncture (Revenue Ruling 72-593)

               *    Air conditioner required for allergy relief

          (Revenue Rulings 55-261 and 68-212)

               *    Alcoholism treatment (Revenue Ruling 73-325)

               *    Attendant to accompany blind child (Revenue

          Ruling 64-173)

               *    Braille publications, to extent cost exceeds

          cost of regular editions (Revenue Ruling 75-138)

               *    Capital improvement to property when primary

          purpose is medical care (Examples: swimming pool, air

          conditioning.  Deductible only to extent cost exceeds

          increase in value of the property.)  (Reg. Sec. 1.213-1(e)(iii)).

               *    Chiropractors (Revenue Ruling 63-91)

               *    Christian Science treatment (Special Ruling

          2-2- 43)

               *    Clarinet lessons to alleviate dental

          malocclusion (Revenue Ruling 62-210)

               *    Contact lenses (Revenue Ruling 74-429)

               *    Contraceptives by prescription (Revenue

          Ruling 73-200)

               *    Cosmetic Surgery, if medically necessary

          (Revenue Ruling 74-429)

               *    Dental Work (Reg. Sec. 1.213-1(e)(i))

               *    Domestic aid, such as nursing care (Revenue

          Ruling 58-339)

               *    Drug addiction recovery (Revenue Ruling

          72-226)

               *    Prescription drugs (Internal Revenue Code

          Section 213(b))

               *    Educational aids for blind student (Revenue

          Ruling 58-223)

               *    Electrolysis (Revenue Ruling 82-111)

               *    Elevator (so cardiac patient won't have to

          climb stairs) (Revenue Ruling 59-411)

               *    Halfway house (Letter Ruling 7714016)

               *    Hearing aids (including specially equipped

          telephone, closed caption television decoder, and

          visual alert system) (Revenue Rulings 73-189, 80-340

          and Letter Ruling 8250040)

               *    Indian medicine man (Tso, 40 TCM 1277)

               *    Insurance (Reg. Sec. 1.213-1 (e)(2))

               *    Lead paint removal (Revenue Ruling 79-66)

               *    Lifetime medical care, prepaid (Revenue

          Ruling 75-302)

               *    Lip reading lessons for the deaf (Revenue

          Ruling 58-280)

               *    Mattress to alleviate arthritis (Revenue

          Ruling 68-212)

               *    Notetaker for deaf student (Baer Estate, 26

          TCM 170)

               *    Orthodontia (Reg. Sec. 1.213-1(e)(1)(ii))

               *    Patterning exercises for handicapped child

          (Revenue Ruling 70-170)

               *    Psychiatric care (Revenue Ruling 55-261)

               *    Schooling, for special relief of handicap

          (Revenue Ruling 70-285)

               *    Sexual dysfunction (Revenue Ruling 75-187)

               *    Swimming pool (for treatment of polio)

          (Letter Ruling 8208128)

               *    Taxi to doctor's office (Revenue Ruling

          68-212)

               *    Transplant, donor's costs (Revenue Ruling 68-

          452)

               *    Wig (Revenue Ruling 62-189)

               Cosmetic surgery is no longer a deductible medical

          expense under all circumstances.  Now the surgery must

          be medically necessary in order to qualify as a

          deductible medical expense.