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Tax deductions for medical expenses

We all know how expensive healthcare is, and how much of the federal budgetary problems have been caused by the growth of Medicare and Medicaid. Georgia residents certainly know when they have to pay for healthcare charges out of pocket, just how expensive it can be. It's important to remember that if you have a significant amount of medical and dental costs in a tax year, you may be able to deduct some of that expense.

As with any tax deduction, there are rules you must follow and abuse of the deduction will trigger an audit, or worse, including paying the tax, interest, penalties and potentially prosecution by the IRS for tax fraud or evasion.

You must itemize medical and dental expenses that were not covered by insurance. Any amount covered by insurance is not tax deductable. The deduction is limited, but it is limited by a "floor," not a "ceiling." This means the deduction is not available until your medical and dental expenses exceed 7.5 percent of your adjusted gross income (AGI).

In other words, of you have an AGI of $50,000, you can only use the deduction if you have out-of-pocket expenses greater than $3,750, and only for the amount greater than that number.

If you paid the medical bill in 2012, you can use it on your 2012 tax return, even if the services were performed in 2011. Expenses of you, your spouse and dependents can be used, and travel costs are included, such as mileage, ambulance costs, tolls and parking.

However, you cannot deduct costs that were paid by Health Savings Accounts (HSA) or Flexible Spending Arrangements (FSA).

While these rules are straightforward, if you have particularly complex expenses, you may want the advice of a tax attorney, and if you are subject to an audit for any reason, always obtain representation by a knowledgeable tax attorney before dealing with the IRS.

Source: IRS Tax Tip 2013-35, "Seven Important Tax Facts about Medical and Dental Expenses," March 4, 2013

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