Friday, February 13, 2009

Tax tips for those with medical expenses.... 

As I mentioned in a previous post, I had intended to write an article on tracking deductible medical expenses for But You Don't Look Sick, but someone beat me to it (and theirs might have been better anyway). Still, I think I might have some useful ideas to impart, so I'll just do some informal thoughts here, whatever comes immediately to mind. Just keep in mind that I'm kinda foggy tonight, heh heh....

As most chronically ill people in America know, you are allowed to deduct only those un-reimbursed medical expenses that exceed 7.5 percent of your income (which, by the way, I think is highly unfair; you should be able to deduct ALL of it). The best way to know for sure whether you've reached this threshold is to track all your expenses each year and tally them up the following January. You also have to save each and every receipt.

I discovered last year that it can be a real pain in the ass to go through a pile of receipts several inches thick at tax time and come up with an accurate total. Oh, and don't forget figuring out how many miles you drove for medical reasons because you need to multiply that number by whatever the going reimbursement rate is that year (for 2009 it's 24 cents per mile). I had expenses for 2007 reaching five figures, and arriving at that number was a rather daunting process.

So I knew I had to come up with a better way. Using Quicken's reporting feature to print out lists of deductible items was helpful, but I only had info in there for stuff that had been paid for with checks, which left out items charged on credit cards or bought with cash. And I realized that if the IRS were to audit me (unlikely since I don't make much money, but the large medical deduction could raise a red flag), it would be difficult to track down the address of each and every provider of care unless I had it in a list.

To make it much easier on myself, I decided to keep running charts of every deductible medical expense I incurred. I made templates that I can copy each year and fill out as I go along. Because I use Turbo Tax online to file my taxes, I made a document for each type of medical expense they ask for: prescriptions, medical facilities (like hospitals and clinics), medical professionals (like doctors and dentists), and X-rays/lab work.

For each page on the document, I put columns for the basic necessary info: recipient (like a hospital name), full address, amount paid, date of service or payment, and miles traveled to and from home. To get the mileage, I simply used MapQuest to find out the distance between my address and that of the recipient and doubled it. Each page had a space at the bottom to put total amount paid and total miles driven for that page, and the last page on each document had all the previous totals and space for a grand total. Finally, I had a single separate page where I summed up expenses and mileage for all categories combined, a list of any refunds I received during the year (such as a prescription rebate) so I could subtract them from the grand total, and a calculation of miles driven times that year's reimbursement rate.

Sounds complicated all spelled out, but once the forms have been created, you can copy and paste data that repeats frequently so you don't have to look it up every time. I also use my appointment calendar for a backup as I go to aquacise three times a week but don't always remember which day I missed when I am too sick to attend. One benefit of having documentation like this is that when you make a payment that is only partially deductible (like when you buy food at the drugstore along with your prescription), you put just the deductible portion on your list and ignore the rest.

I just filed my taxes earlier this week, and even though my medical expenses were greater than the previous year, it was much easier to come up with the proper totals this time because I'd been entering the data all year long as it was incurred. I simply printed out my completed documents and fed the medical totals into Turbo Tax. The only little snag I encountered was that this year they asked for mileage split into the first six months and the second six months of the year (last year they just had you enter the grand total), but that was easily calculated because I had put all my data in chronological order.

For those of you on SSDI (Social Security Disability Insurance), I would recommend against filing your taxes by hand if you have a working spouse, because it is a pain to calculate how much of your benefit amount is taxable. Software or online filing like Turbo Tax will figure this out for you. If you will have to use the long form 1040 (likely if you have medical expenses to deduct), it is worth the $30-$60 you pay for a service because they will walk you through every single potential deduction if you wish so you can be sure you don't miss anything.

I had an astounding 25 percent of my total household income go to medical expenses last year. Yet it only took me one evening to ready my paperwork and one evening to actually file my taxes. Had I not tracked my medical expenses throughout last year, though, this could have taken several days or even a week or more.

BTW, I am getting a refund, albeit a small one. Unfortunately, my disability pension is not having any taxes taken out even though I filled out the paperwork twice to have this done. So all the medical expenses only offset the pension a little bit.

I read that the stimulus package includes a one-time payment of $250 to those on Social Security. Hope the government doesn't really expect us to go out and shop with that money. Just about everyone I know on disability needs it to live on.

Well, that's my little lesson for the day. I plan to do another article for But You Don't Look Sick soon, probably a short product review. Until then, I have some new medical expenses to record.

Wonderful article and great tips! I plan to mention your article in my blog today!
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