What Seniors Must Know Before Filing Their 2011 Tax Return (Part 6)

by on April 14th, 2013
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For seniors, the Internal Revenue Service is divided into 2 parts:

(1) The Good IRS and

(2) The Bad IRS

The Bad IRS – that’s the one we are all familiar with – its job is to try to take as much money from you as it can.

The Good IRS – we don’t hear too much about them – its job is to save you as much money as it can.

This is the sixth in a series of articles about the Good IRS and information and resources it makes available to help seniors through the onerous task of filing their tax returns. In Part 5, we began our discussion of deductions that are of particular interest to seniors by focusing on the standard deduction. In Part 6 we will discuss what the IRS says about medical and dental expenses.

Here again the Good IRS comes to the rescue with Publication 554 “Tax Guide for Seniors” http://www.irs.gov/publications/p554/ch01.html. Chapter 4 “Deductions” is specifically geared toward seniors with an explanation of the special additions to the standard deduction for seniors, when to take the standard deduction, what itemized deductions are generally available to seniors, and a detailed explanation of the medical expense deduction and some of the other deductions commonly available to seniors.

In order to figure the medical deduction, we need to answer two questions. But before proceeding, we need to get some tax return preparation advice from that leading tax expert, Groucho Marx. Ever on the prowl to make a buck, Groucho, in the 1933 movie “Duck Soup”, asked the rich widow Margaret Dumont “Will you marry me? Did he leave you any money? Answer the second question first!” So that’s the way we will approach the medical deduction.

The first question: Is the total amount of your allowable medical and dental expenses more than 7.5% of your adjusted gross income (line 37 of the IRS Form 1040)? The second question: What are the allowable medical and dental expenses you paid for yourself, your spouse and your dependents?

Using the Groucho method of tax return preparation, answer the second question first by turning your attention to Chapter 4’s Table 4-1 Medical and Dental Expenses Checklist. It shows 25 common items you can deduct and 17 you cannot. Chapter 4 includes a detailed discussion of some of these areas such as home improvements, household help, hospital services, long-term care, meals and lodging, medical insurance premiums, medicines, nursing services and transportation. Please note that the items in Chapter 4 are not exhaustive. For an even more thorough discussion see IRS Publication 502 Medical and Dental Expenses.

Also, when and how you paid for the expenses is important. The IRS says: generally, you can include only the medical and dental expenses you paid this year, regardless of when the services were provided. If you pay medical expenses by check, the day you mail or deliver the check generally is the date of payment. If you use a pay-by-phone or online account to pay your medical expenses, the date or online account to pay your medical expenses, the date reported on the statement of the financial institution showing when payment was made is the date of payment. You can include medical expenses you charge to our credit card in the year the charge is made. It does not matter when you actually pay the amount charged.

To answer the first question – is the total of the allowable expenses more than 7.5% of your adjusted gross income? use the first part of IRS Form 1040 Schedule A to make the calculation:

1. Total allowable medical and dental expenses

2. Enter amount from IRS Form 1040, line 38 (your adjusted gross income)

3. Multiply line 2 by 7.5% (.075)

4. Subtract line 3 from line 1. This is your allowable expense. If line 3 is more than line 1, enter -0-

So that’s the basics of the medical and dental expense deduction. Please see Chapter 4 of Publication 554 for the whole story. Part 6 of “What Seniors Must Know Before Filing Their 2011 Tax Return” will further discuss Chapter 4 and deductions that are of particular interest to seniors.

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