The tax deadline is just weeks away–and for those seniors living on a fixed income or unpaid caregivers taking care of a loved one, every dollar counts. That’s why knowing about tax tips for seniors is so important.
Whether you’re visiting the doctor more, starting your own businesses, caring for a spouse or an elderly relative or making home improvements to accommodate new medical devices, today’s baby boomers are in a better position than ever to benefit from medical and health insurance-related tax deductions.
Here are some of my favorite tax tips for seniors. Talk with your accountant to see which deductions apply to you.
Deducting health insurance and medical expenses.
Let’s start with the basics. If you itemize on your federal tax return you may be able to deduct medical expenses from your taxable income. Qualifying medical expenses may include monthly premiums you pay for health insurance, copayments, deductibles, dental expenses and costs for some services not covered by your insurance plan. You can even deduct mileage accrued while driving to and from medical appointments.
If you or your spouse is already receiving Social Security or on Medicare, premiums taken from your Social Security checks to pay for Medicare Part B qualify as deductible too, as do premiums you paid for Medicare Part D (Prescription Drug) coverage or a Medicare Supplemental plan.
Here’s the catch: You can only deduct the portion of your medical expenses that exceeds 7.5% of your adjusted gross income. That may seem like quite a hurdle, but if you were seriously ill or hospitalized last year, you may qualify.
Deducting health insurance premiums as a business expense.
If you had self-employment income in 2011, you may be able to deduct health insurance premiums you paid for yourself and your dependents as an ‘above the line’ business expense (that is, without itemizing).
Be aware, however, that you may not deduct premiums paid for any month in which you were eligible to participate in an employer-sponsored health insurance plan, and that the amount you deduct cannot be greater than your net self-employment income for the year.
Also keep in mind that you can’t include what you paid toward your monthly premiums as an ‘above the line’ expense and also itemize it. Talk to a tax professional to learn more about the different types of self-employment status and the tax implications of each.
Deducting expenses for the care for an aging parent.
Lots of today’s boomers are taking care of elderly parents. If that’s you, you may deserve some relief. If your elderly parent earned less than $3,700 in 2011 (excluding Social Security) and you provided more than half of his or her financial support, you may be able to claim your parent as a dependent.
This earns you an additional dependent exemption, even if your parent doesn’t live with you. And if you’ve paid for the medical or nursing care of a dependent parent, you may also be able to itemize your costs as qualified medical expenses.
Deducting medical home improvements.
If you or a dependent are suffering from a chronic medical condition requiring changes to your home, you may have an easier time meeting the 7.5% adjust gross income threshold to deduct itemized medical expenses. In addition to your out-of-pocket costs for medical, dental or vision care, you may also be able to include capital expenses for the installation of home medical equipment or improvement of your property for wheel-chair access.
Getting the most from your Health Savings Account (HSA). If you have an HSA, be sure to deduct your contributions up to federally prescribed limits. Contributions to your HSA designated for 2011 and made before April 17, 2012 can be counted toward your 2011 federal taxes. HSA contributions for the 2011 tax year are capped at $3,050 for individuals and $6,150 for families. If you’re over age 55, you may qualify to make an additional $1,000 contribution for the year.
Ross Blair is President and CEO of Plan Prescriber, Inc., a leading provider of comparison tools and educational materials for Medicare-related insurance products.