What is the Medical Expense Deduction?

Although it cannot be used as a deduction for the Alternative Minimum Tax, medical expenses do affect your regular income tax which in turns affects how many stock options you can exercise

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Quick Summary

  • You can deduct medical and dental expenses that in total exceed 7.5% of your AGI when filing for your taxes
  • There are a variety of things you can deduct that you may not have considered, including travel costs or certain premiums
  • If you receive health insurance from your employer, and those premium payments are deducted from your paycheck, you would not separate it as another line item (as it’s already been deducted!)
  • Using this deduction means you would be taking the itemized deduction as opposed to the regular standard deduction
  • The Medical expense deduction is not an eligible deduction for AMT purposes!

What is the Medical Expense Deduction?

Although named the ‘Medical’ Expense Deduction, this deduction actually covers both medical and dental expenses. It is an itemizable deduction you are allowed to take to help offset any major costs you had in the year for medical and dental items. Anything from simply going to the doctor and getting prescription drugs to getting dentures, acupuncture or intensive medical care.

Wait, did I see ‘travel costs’ earlier?

Yes! Just like you might expense travel when driving somewhere for a business meeting, the same applies for this deduction. Say you’re making frequent trips to a dialysis clinic - you can deduct the mileage driven. Now if the distance is not that far away, it may not be worth your while to do the math, but you can find all the details here.

Please note, however, that you can only deduct anything in excess of 10% of your Adjusted Gross Income (AGI).

As an example, let’s pretend you made $80,000 in a year, and your AGI came out to be $55,000. 7.5% of that AGI would come out to $4,125. Let’s presume you had many medical and dental procedures done amounting to a total of $10,000. That means you would only be able to deduct $5,875 as part of your itemized deduction (10,000 minus 4,125).

There is no maximum for how much you can deduct. You won’t need to provide an itemized list of receipts when filing your taxes, but be sure to have them on hand in case you get audited.

There’s a ton of things I can deduct. What can’t I deduct?

According to the IRS site, you cannot deduct:

  • Funeral / Burial Expenses
  • Nonprescription medicines (i.e. over the counter, non prescribed ibuprofen)
  • Toothpaste, Toiletries, Cosmetics
  • A ‘well being’ trip, program, or vacation (i.e. going to Cabo for some R&R)
  • Cosmetic Surgery
  • In addition you cannot deduct non-prescribed purchases of nicotine gum or patches

You can find a full list of things you can or cannot deduct in detail on IRS Publication 502

Wow, that was a mouthful. Luckily, you can forget the headache, and let our AMT Calculator AMT Calculator do all the work for you!