We get this question a lot at ClarkSilva. Luckily, it’s one of the few tax inquiries that are easy to explain!
Short answer: yes, you can potentially deduct medical expenses such as prescription drugs on your federal tax return. That said, it can be hard to qualify for this rule, but with proper planning, you can take advantage of this opportunity for your 2021 return.
First, be sure to note that the medical expense tax deduction can only be applied to unreimbursed costs that exceed 7.5% of your adjusted gross income (AGI). Plus, you have to be ready to itemize these costs in order to claim a deduction. Generally it is only beneficial to itemize your deductions if they exceed the standard deduction for that particular tax year.
Moving non-urgent medical procedures into 2021, rather than 2020 or 2022 (also called “bunching”) could help exceed the 7.5% floor in that year and thus benefit from the medical expense deduction. Examples of non-urgent or “controllable expenses” may include purchasing eyeglasses or hearing aids, dental cleanings, and elective surgery.
Here’s some other options for allowable costs:
- Health insurance: Even if your employer provides health coverage, deduct the portion of the premiums that you pay with post-taxed money.
- Transportation: From Uber fares to public transportation to your own car, the cost of travelling for medical treatment counts as a medical expense. The rate for car costs in 2021 is 16¢ a mile for miles driven, plus tolls and parking. However, you can alternatively deduct certain actual costs like gas and oil instead if these expenses exceed the 16¢ a mile.
- Counselling and home healthcare services qualify if they are required to address a medical condition, as do certain long-term care services for chronically-ill individuals.
- Participation payment for smoking-cessation programs and prescribed drugs designed to alleviate nicotine withdrawal drugs (not over-the-counter) are deductible.
- Weight-loss programs apply if prescribed to treat a diagnosed disease; this includes joining and membership fees, but not food.
- Have dependent children? Their medical costs are deductible. The same goes for medical costs you pay for certain other dependent individuals, such as an elderly parent.
The best way to take advantage of the medical expense tax deduction is to start thinking about your 2021 returns now and make a solid plan for the year ahead. Need some guidance on maximizing your allowable costs? We’re here for you.