Medical Expenses 38) A critical strategy for maximizing medical expense deductions is known as "bunching." The idea is to pay as many medical bills in one year as possible. The 7.5% floor on medical expense deductions requires this tactic. Once your medical bills for the year exceed the floor, all expenses above that amount are fully deductible. So you want to make payments that year whenever possible instead of waiting until next year when you must start trying to exceed the floor again. When emergency care and necessary surgery occur, you can do little to change the timing. But you can influence elective surgery and continuing care expenses. The first step is to determine how likely you are to exceed the 7.5% floor this year. If you are unlikely to exceed it, then you want to defer whatever payments you can. Put off any elective treatments and when possible avoid paying bills until after December 31st. In a year where you are likely to exceed the floor, you want to pay all the expenses that you've been deferring or considering. For instance, if there is an elective surgery that you've been considering, have it done only in a year when you think the floor will be surpassed. When you pay for long-term care such as a nursing home, try to prepay for two years at a time or whatever you can afford. If you visit a doctor in December, be sure the bill is paid by December 31st. Most importantly, examine this report thoroughly for deductible expenses that you might have overlooked. With bunching, you generally adopt a two-year strategy. One year you pay all the expenses you can and take the deductions. The following year, unless unexpected expenses come up, you pay only the expenses that must be paid because you probably won't exceed the 7.5% floor for deductions. 39) One way around the floor on medical expense deductions is to reclassify your medical expenses as something else. For instance, if a nurse must be hired to look after your spouse or a dependent so you can go to work, consider taking the dependent care credit instead of the medical expense deduction. When an attendant is needed to take you to work or accompany you on business trips, you should try deducting the cost as a business expense. In one case a psychiatrist was encouraged by the directors of his residency program to undergo psychotherapy. They said the treatment would not only solve his personal problems but would make him a better psychiatrist. Rather than treating the cost as a medical expense, the doctor chose to treat it as a business education expense, and the Tax Court agreed. (Porter, 86 TC No. 13 (Feb. 13, 1986)). 40) You can pay your parents' medical expenses with their cash and take the deductions yourself. If your parent makes an unconditional gift to you, the money is then yours. It is not taxable income. You can use that money however you want to, and if you want to pay your parents' medical bills that's fine. You'll be paying the expenses with your money. When the parent is your dependent, you can take the medical expense deduction. One taxpayer got a power of attorney from the parent and shifted funds from the parent's account to his whenever bills had to be paid. After the money was deposited in the son's checking account, it became his. He paid the medical bills and was entitled to deduct the expenses. An important point is that the money must be transferred to your personal checking account before the bills are paid. 41) The cost of a health club membership can be deductible. The way not to get the deduction is to claim that your employer requires you to stay in excellent physical shape, as a police officer found out. (Revenue Ruling 78-128). But you can get the deduction if the membership is prescribed by your doctor to treat a specific physical ailment, such as high blood pressure or arthritis or to rehabilitate an injured body part. Get the doctor's order in writing and don't be buffaloed by IRS employees who try to tell you it's not deductible. But note that the membership must be part of the treatment for a specific problem. If the doctor orders you to lose weight or improve your overall physical condition, it is not a deductible expense. 42) All or part of the cost of a nursing home can be deductible. If a principal reason for placing someone in the nursing home is to obtain full-time medical care, the entire cost of the home is deductible. (Reg. Sec. 1.213-1(e)(1)(v)(a)). Even when you don't meet this test, you can still deduct the portion of nursing home expenses related to medical care. The nursing home should be able to give you an itemized breakdown of the portion of the cost that is related to medical care or provide an estimate that will be acceptable to the IRS. If you pay the expenses on behalf of someone who is dependent, the expenses are deductible to you. But if you make a lump sum payment for lifetime care, the expense cannot all be deducted in the year of payment. It must be deducted equally over the expected lifetime or some other period. 43) Personal mileage related to medical care is deductible. Your mileage incurred on trips to and from your doctor's office or other place you receive medical care are deductible miles. The trip must be essentially and primarily for medical care. (Reg. Sec. 1.213-1(e)(l)(iv)). You can take the standard mileage rate of nine cents per mile or deduct actual expenses. With these trips you cannot deduct depreciation and repairs, as you can for business mileage. That's why the mileage rate is lower than the business standard mileage rate. Any rides you give to a dependent that are related to medical care are deductible. 44) Overnight lodging can be a deductible medical expense. When a trip is taken primarily for medical care and is essential to the care, you can deduct the cost of overnight lodging. The medical care must be performed by a physician at a licensed hospital or equivalent medical care facility. If the medical care is for a dependent and your presence is needed to approve operations or for some other reason, the cost of your lodging is deductible. The deduction is limited to $50 per night, and meals are not deductible. 45) Don't miss out on these little-known medical expenses. Many taxpayers are incurring deductible expenses without knowing it. Here is a list of the deductible expenses and the authority for deducting them. * Acupuncture (Revenue Ruling 72-593) * Air conditioner required for allergy relief (Revenue Rulings 55-261 and 68-212) * Alcoholism treatment (Revenue Ruling 73-325) * Attendant to accompany blind child (Revenue Ruling 64-173) * Braille publications, to extent cost exceeds cost of regular editions (Revenue Ruling 75-138) * Capital improvement to property when primary purpose is medical care (Examples: swimming pool, air conditioning. Deductible only to extent cost exceeds increase in value of the property.) (Reg. Sec. 1.213-1(e)(iii)). * Chiropractors (Revenue Ruling 63-91) * Christian Science treatment (Special Ruling 2-2- 43) * Clarinet lessons to alleviate dental malocclusion (Revenue Ruling 62-210) * Contact lenses (Revenue Ruling 74-429) * Contraceptives by prescription (Revenue Ruling 73-200) * Cosmetic Surgery, if medically necessary (Revenue Ruling 74-429) * Dental Work (Reg. Sec. 1.213-1(e)(i)) * Domestic aid, such as nursing care (Revenue Ruling 58-339) * Drug addiction recovery (Revenue Ruling 72-226) * Prescription drugs (Internal Revenue Code Section 213(b)) * Educational aids for blind student (Revenue Ruling 58-223) * Electrolysis (Revenue Ruling 82-111) * Elevator (so cardiac patient won't have to climb stairs) (Revenue Ruling 59-411) * Halfway house (Letter Ruling 7714016) * Hearing aids (including specially equipped telephone, closed caption television decoder, and visual alert system) (Revenue Rulings 73-189, 80-340 and Letter Ruling 8250040) * Indian medicine man (Tso, 40 TCM 1277) * Insurance (Reg. Sec. 1.213-1 (e)(2)) * Lead paint removal (Revenue Ruling 79-66) * Lifetime medical care, prepaid (Revenue Ruling 75-302) * Lip reading lessons for the deaf (Revenue Ruling 58-280) * Mattress to alleviate arthritis (Revenue Ruling 68-212) * Notetaker for deaf student (Baer Estate, 26 TCM 170) * Orthodontia (Reg. Sec. 1.213-1(e)(1)(ii)) * Patterning exercises for handicapped child (Revenue Ruling 70-170) * Psychiatric care (Revenue Ruling 55-261) * Schooling, for special relief of handicap (Revenue Ruling 70-285) * Sexual dysfunction (Revenue Ruling 75-187) * Swimming pool (for treatment of polio) (Letter Ruling 8208128) * Taxi to doctor's office (Revenue Ruling 68-212) * Transplant, donor's costs (Revenue Ruling 68- 452) * Wig (Revenue Ruling 62-189) Cosmetic surgery is no longer a deductible medical expense under all circumstances. Now the surgery must be medically necessary in order to qualify as a deductible medical expense.