There could be an unwelcome surprise for many citizens (age 65 or older) who itemize deductions on their tax return rather than claim the standard deduction. Traditionally, persons were only allowed to deduct medical expenses that exceeded 7.5% of their adjusted gross income (AGI). In 2010, Congress made changes to the amount of medical expenses that Americans can claim on their tax returns as part of the Affordable Care Act (ACA). The 7.5% threshold was increased to 10% of AGI beginning with the 2013 tax year. To avoid the wrath of seniors age 65 or older who vote, Congress grandfathered this 10% threshold until tax year 2017. Thus beginning with the 2017 tax year, all Americans, regardless of age, will need to have medical expenses exceed 10% of their AGI in order to deduct medical expenses as an itemized deduction.
Accordingly, it is very important for taxpayers who are age 65 or older in 2016 to consider how they will be affected by the higher post-2016 threshold to claim a medical expense tax deduction. Some may lose their medical expense deduction in 2017 and may only be able to claim the standard deduction due to this ACA change. For those seniors who are certain that they will exceed the medical-expense-deduction floor for 2016 (based on 7.5% of AGI), but may be uncertain about exceeding the floor for 2017, consideration should be given to incurring discretionary or elective medical expenses in 2016 rather than in 2017. Such expenses may include dental implants or bridgework, or expensive eyewear (e.g., variable focus lenses), as well as certain types of surgeries that might safely be postponed or accelerated, such as LASIK surgery, cataract surgery, or knee replacement surgery. Taking care of any unpaid medical or dental bills before the end of the year would have the same effect as discretionary or elective medical expenses.
If a medical provider accepts credit card payment, the taxpayer is considered to have paid his medical expense in 2016 if he pays the provider with a credit card this year, even if the credit card company doesn’t send the bill to the taxpayer until 2017. If the provider doesn’t accept credit cards, the taxpayer could use his card to get a cash advance to pay the provider in 2016. Also, if a taxpayer pays by check dated no later than Dec. 31 that is mailed in an envelope that is postmarked by that date, it will count as a 2016 payment even though the payee doesn’t deposit the check until 2017 (assuming that the check is honored when first presented for payment).
There could be circumstances where it may be more beneficial to defer 2016 medical expenses to 2017. This may be the case where the taxpayer or the taxpayer’s spouse has been newly diagnosed with a degenerative disease, or where qualified LTC expenses or expensive nursing services are likely to be incurred next year. In such cases, the taxpayer should consider deferring discretionary or elective medical expenses until next year.
If you want to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.