As we age and pay off our mortgages, it seems that baby boomers and retirees are less likely to itemize deductions. On the other hand, this stage in our lives can introduce new sources of deductions that we may not think of.
One cost category where we may overlook deductible expenses is in medical and health care. I have been reading about this and thought that a summary of what is available would help.
Deductible Health and Medical Insurance Premiums
Premiums for Medicare Part B coverage (which applies to medical costs other than hospital bills) are deductible. Typically, these premiums are deducted from Social Security benefits and for most folks total around $1150/yearly.
Premiums for Medicare Part C coverage ( Medicare Advantage insurance) are deductible. The amounts of these premiums vary quite a bit depending on the plan.
Premiums for Medicare Part D coverage (prescription drugs) are deductible. These premiums average around $300 yearly, per person covered.
Premiums for Supplemental Medicare Coverage (Medigap Insurance) are deductible. Medigap policies are usually expensive, often $1000-$2000 yearly per person. Not everyone buys these policies.
Deductible Long-Term-Care Insurance Premiums
Premiums that you pay for for qualified long-term care (LTC) insurance policies are also deductible medical expenses, subject to limits based on your age. If you are between 61 and 70 years old, you can deduct up to $3080 (for 2008). If you are over 70, the deduction limit increases to $3850. Of course, you cannot deduct more than you actually pay.
Deduction of Medical Expenses for Relatives
Adding Up the Deductions
To determine if it makes sense to itemize instead of using the standard deduction, add up all of these medical insurance costs. Then combine that total with your other routine out-of-pocket medical expenses, such as doctor bills and drug costs.
From that medical expense total, subtract 7.5% of your yearly Adjusted Gross Income (AGI). That is the amount that you can add to your other tax deductions, such as mortgage interest, property taxes, state and local income or sales taxes, etc.
If the grand total exceeds $6,800 (you are single and over-65) or $13,000 (you are filing jointly, and both spouses are over 65), then it’s time to switch back to itemizing.
I hope it works for you.
Image credit: Rachael Voorhees