If you’re nearing the age for Medicare eligibility, there are some things you should know about Medicare. One of those things is whether Medicare premiums are tax-deductible. You want to ensure you file your taxes correctly, but you also want to be certain you take advantage of every deduction available to you. Let’s break down what Medicare tax deductions you can take, what expenses aren’t deductible and other things you should consider for your taxes.
A financial advisor can help you create a financial plan to pay for your medical expenses in retirement.
Can You Deduct Medicare Premiums?
Yes, Medicare premiums are tax deductible as a medical expense as long as you meet two requirements. First, you must itemize your deductions on your tax return to deduct them from your taxable income. Second, only medical expenses that exceed 7.5% of your adjusted gross income (AGI) are deductible.
Let’s break that down a bit. By itemizing your deductions, you’re forgoing the standard deduction in favor of listing your personal deductible expenses. If you have enough deductible expenses, this can improve your standing at tax time. To do this, you’ll need to keep receipts and records to prove the expenses.
If you have an AGI of $60,000, for example, you’ll be able to deduct any medical expenses that exceed $4,500. That first $4,500 isn’t deductible. So, if you have $7,500 in medical expenses – including Medicare premiums – only $3,000 is deductible.
Are Medicare Premiums Tax Deductible If You’re Self-Employed?
Yes, they are. In fact, if you’re self-employed, you may not have to meet the mark of having 7.5% of your AGI go to medical expenses. That includes whether you’re fully employed, or if you’re retired and doing some consulting or freelancing on the side.
To qualify for the deduction, neither you nor your spouse may be eligible for health insurance through an employer. This deduction includes any premiums you pay with Medicare parts A, B, C and D, as well as Medicare Advantage and Medigap premiums. You claim this deduction on Schedule 1 when filing Form 1040.
What Other Medicare Expenses Are Tax Deductible?
Even if you receive Medicare, you may be facing a variety of medical expenses that Medicare doesn’t cover. Along with Medicare premiums, some of these medical expenses are tax deductible. Costs like long-term care, transportation for appointments and home improvement changes you’ve had to make due to a disability can be tax-deductible. Here are some other out-of-pocket expenses that you can deduct:
Dental care: Co-pays, extractions, fillings and any other dental expenses can be deductible.
Ear and eye care: Glasses, contacts, hearing aids, eye and ear exams and more can be deductible.
Medical equipment: Walkers, wheelchairs, braces and any other sort of equipment you need can be tax deductible.
Mental health: Psychiatric care, psychoanalysis and therapy for medical treatment can be a tax-deductible medical expense.
Chiropractic services, vasectomies and more: The IRS’ list of tax-deductible medical expenses is fairly comprehensive. If you think the expense qualifies, do some research.
Remember that these expenses combined will have to make up over 7.5% of your AGI to be deductible.
Are There Medicare Expenses You Can’t Deduct?
While Medicare premiums and many other medical expenses are tax deductible, the IRS has a short list of medical expenses that don’t qualify for the deduction. These include:
Cosmetic surgery
Hair transplants
Electrolysis, or hair removal
Nonprescription drugs, such as supplements and vitamins
Drugs bought internationally
Personal hygienic items
Teeth whitening
Gym or health club fees
HSA contributions
Bottom Line
As you get older, the chances are that you’ll have more medical expenses. While this isn’t exactly great news, there is a small upside in that you can deduct medical expenses that exceed 7.5% of your AGI. That includes Medicare premiums, as well as many other common expenses. To make the most of your taxes, you need to itemize your deductions and present proof of the expenses in the form of receipts.
Tips for Getting the Best Tax Deduction
Deductions are a complex part of the U.S. tax code. Depending on your profession, your lifestyle and how you file, you may be able to claim different deductions. A financial advisor can walk you through these deductions. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When planning for your taxes, it helps to have an idea of what you’re in for. If you want to estimate how much you’ll pay in taxes, check out our income tax calculator to see how federal and state taxes may impact you.
If you’re eligible for Medicare, chances are you’re retired or hoping to retire soon. Our retirement calculator can help you determine your estimated Social Security benefits, how much savings you need to retire and how much extra income you’ll need in retirement.
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Source: https://finance.yahoo.com/news/medicare-premiums-tax-deductible-130055396.html