Paul Ferraresi

Everyone hates paying taxes but no one does anything about it. Why do you and most other people wait until April 15th to do tax planning? That is like planning a cruise vacation after the ship has sailed. Get started now with your tax planning before the year end holiday parties consume your time. Remember a tax dollar you save is “yours to keep”.

The law allows you to deduct only those medical expenses that are in excess of 7½% of your adjusted gross income (AGI). At first glance, this seems to make it almost impossible for most people to deduct any medical expense.

Trick: accelerate and/or delay expenses so that everything possible is lumped into a given year.

Ways to do it:

• Have voluntary surgery that you have been putting off.
• Get the dental work that you have been avoiding.
• Pay any medical bills that are outstanding from past years.
• Pay bills for medical expenses that were incurred this year . . . before the year-end.
• Medical and dental expenses paid by credit card are deductible in the year you sign for the charge, rather than in the year you pay the credit card company. Boost deductions by putting year-end medical expenses on your credit card.
• Drugs. Only prescription drugs and insulin can be deducted now as medical expenses.
• Dependents. You can deduct medical expenses you pay on behalf of a dependent. Bonus: You can also deduct medical expenses paid for a family member who meets all the requirements for being claimed as your dependent except when he or she has too much income. Suggestions: Pay the medical bills of a person you are helping support. Those payments could get you both a dependency deduction and a medical expense deduction.
• Separate returns. It is sometime advantageous for a married couple to file separate returns when one spouse, but not the other, has heavy medical expenses. On a joint return, medical expenses must exceed 7½% of a couple’s combined adjusted gross income. However, if separate returns are filed, only the income of the spouse with the big medical bills is considered for the deduction limit. Work the numbers out both ways before filing.
• For bosses. Owners of closely held corporations, especially those with a few other employees, may avoid the percentage limit by setting up a company medical reimbursement plan. As long as the plan covers all employees and does not favor those who are highly compensated, the company can reimburse its employees (including officer stockholders) for their actual medical bills. The reimbursed amounts are tax-deductible by the corporation and are not taxable income to the employees. The percentage limit does not apply.

Planning tip: Taxpayers who expect their adjusted gross income to decrease next year may do best by using an opposite strategy, putting off paying as much of their medical bills as possible until next year.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as financial advisors, we are not qualified to render advice on tax or legal matters.