preparing for tax time all year long

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preparing for tax time all year long

Having a certified personal accountant working with you to prepare for your taxes throughout the year will help you in so many ways. Do you wait until the beginning of the year to get your documents in order to file your taxes? Did you realize that doing so could end up costing you money when you do file your taxes. This blog will show you some of the things that you could be missing if you aren't paying attention to your taxes until it is time to file. Maybe after reading, you will make changes to the way you go about preparing for tax time.


Senior Tax Guide: How To Deduct Your Medical Expenses

For many seniors, medical expenses make up a lot of the money that they spend every year. If you spend most of your money on medical expenses, and you are a senior, make sure that you are deducting all qualifying medical expenses on your taxes. 

Federal Tax Definition

If you are over 65 years old, you can deduct all medical expenses that exceed 7.5% of your adjusted gross income (AGI) for the year. That means that all expenses that are greater than 7.5% of your income can be deducted from your taxes.

For example, if your adjusted gross income is $50,000, than any medical expenses that exceed $3,750 (which is 7.5%) can be deducted from your taxes. That means every penny that you spend on medical expenses that exceeds $3,750 can be deducted from your taxes and can be used to lower your tax bill. 

What Counts As Out-Of-Pocket Medical Expenses

Most medical expenses that you pay yourself count as out-of-pocket medical expenses. Here are some different medical expenses that can all be deducted from your taxes after the amount exceeds 7.5% of your AGI:

  • Health insurance premiums
  • Dental insurance premiums
  • Prescription drug costs
  • Long-term insurance premiums
  • Any costs not covered by your insurance
  • Transportation costs for medical care (public transportation, ambulance, tolls, parking fees)

It is important to note that you are not allowed to deduct any expenses that your insurance reimburses you for. You can also not deduct any expense you paid for out of a health savings account or flexible spending arrangement since those funds are already tax-free. 

How You Have To File

In order to deduct your medical expenses, you cannot use the standard deduction on your taxes. Instead, you have to take the itemized deduction on your federal tax returns. That means you will also need to make sure you keep track of any other expenses that you would need to deduct since you are not taking the standard deduction. 

This will require you to keep better track of all things you would need to itemize on your federal tax return. Here are a few things you would need to itemize as well:

  • Mortgage interest
  • Student loan interest
  • State income taxes
  • Local income taxes
  • Charitable donations
  • Professional organization dues
  • Business liability insurance premiums
  • Tools and supplies related to work
  • Work-related moving expenses
  • Tax preparation fees
  • IRA management fees
  • Safe deposit box rental fees
  • Gambling losses

You will have to keep track of all of these expenses as well if you choose to go with the itemized deduction in order to write off your medical expenses instead of the standard deduction. 

If you have a lot of medical expenses, see if they exceed 7.5% of your AGI. If your expenses do exceed that percentage, taking an itemized instead of standard deduction may help lower your tax burden. 

For tax preparation, contact a company such as Jeff Baker & Associates, PS.