The IRS creates and maintains a list of helpful tax tips that can benefit California taxpayers as they begin to prepare their 2011 returns. Failure to heed these tips may result in paying more tax than is required or may risk an audit by the IRS. An experienced California tax attorney can ensure that your taxes are in order and defend you in the event of an audit.
Today's tax tips deal with the effect that expenses incurred for dental or medical treatment can have on your 2011 tax return. Under certain circumstances, you may be able to reduce your taxes if you, your dependents, or your spouse received dental or medical services. The rules are slightly different for divorced couples.
To begin, only certain types of medical and dental expenses are eligible for deduction. In general, expenses incurred to preclude, diagnose or rehabilitate an ailment or medical condition are deductible. And while insurance premiums are deductible, deductions for drugs are limited to prescriptions and insulin. You can also deduct transportation costs incurred in connection with the medical treatment.
Although it may seem counterintuitive, it does not matter if the treatment occurred in 2011. It does matter, however, when you paid for the treatment. Payments made in 2011 and supported by receipts are eligible for deduction.
It is important to remember that if you want to deduct your medical and dental expenses, you need to choose to itemize your deductions instead of opting for the standard deduction. The amount of your expenses and other deductions will determine whether you should itemize or not when filing your 2011 taxes.
Lastly, there are rules that deal with the precise amount of medical and dental expenses you can deduct. First, there is an adjusted gross income (AGI) floor the expenses must meet. You can only deduct those expenses in excess of 7.5 percent of your AGI. Second, if you were reimbursed for some expenses, the amount of that reimbursement is not eligible for deduction.
Source: Internal Revenue Service, "Eight Things to Know about Medical and Dental Expenses and Your Taxes," IRS Tax Tip 2012-30, Feb. 14, 2012.