Tag: medical expenses

Posted on by Jan Roberg

Claiming a Dog as a Medical Expense

There are only two places where you could claim a dog on your tax return. The first is as a medical expense and the second is as a business expense.   Most importantly, it has to be a legitimate expense.  Dog expenses claimed on a tax return are likely to get audited so you’ll want plenty of documentation.

You may never, NEVER, claim your dog as a dependent on your taxes.

Today I want to look at dogs as a medical expense.  According to the IRS medical expense publication:  You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually-impaired or hearing impaired person, or a person with other physical disabilities. 

A seeing eye dog is an easily proved legitimate medical expense that you can deduct.  The same goes for a hearing assist dog. Note that the IRS definition only discusses “physical” disabilities. Mental disabilities are conspicuously absent from this category.

If your service dog is meant to help with a mental disability, you may not win the deduction in the event of an audit.  That doesn’t mean shouldn’t claim a legitimate mental health service dog. You just need to recognize that the bar is going to be set higher in the event of an audit.

 Here’s a question to ask yourself—if you were to be audited for your dog expense, could you obtain written letters from your doctor that your dog is necessary for you to work or function?  This is important. 

I worked on an audit once where the man had claimed his dog as a medical expense.  The IRS auditor was willing to allow the expense if the man obtained a letter from his psychiatrist. All it needed to say was that yes, the dog was part of the man’s treatment.   Although the psychiatrist admitted that he had recommended that the man get a dog, he refused to issue a letter. He said the dog was a good idea, but not official treatment. We lost the case. 

If you are self-employed, you may be able to claim your service animal as an impairment related work expense.  To qualify here, you must have a physical or mental disability that functionally limits your being employed. Or, have a physical or mental impairment that substantially limits one or more of your major life activities such as performing manual tasks, walking, speaking, breathing, learning, or working.  If you’re able to claim your service dog as a business expense in this way, it’s usually a better deduction for you than the medical expense deduction. (A business expense is a direct write-off, a medical expense has other hoops before you get any benefit.)

I cannot stress enough the importance of legitimacy here.   You can’t just go online and purchase a “service dog” vest for your pooch and take him to work with you.  The service your dog provides must be necessary for you to do your work in a satisfactory manner.

 If you intend to claim a dog as a medical expense (other than a seeing eye or hearing assist dog), it is absolutely essential that you have the support of your doctor.  I’d get the letter from your doctor before claiming the dog on your taxes. Keep it with your tax paperwork in case you need it later.  If your doctor refuses to give you a letter, it’s a good hint that you shouldn’t try to claim your dog as a medical deduction.

Posted on by Jan Roberg

Maximizing Your Medical Expense Deduction

Medical/Surgical Operative Photography

Photo by phalinn at Flickr.com

Updated for 2013

First things first, the vast majority of people won’t qualify for a medical expense deduction.  You’ve got three big things in the way.  The first is that your medical expenses have to be over 10% of your Adjusted Gross Income before you can start to claim them.  (7.5% if you are 65 or over.) That means if you make $50,000 a year, your medical expenses have to be over $5,000 before any of it can be deducted.  (Over $3,750 if you are 65 or over.)  Second, even if your medical expenses are high enough to be deductible, you’ve got to have enough other deductible expenses to exceed the standard deduction to make claiming your medical expenses worthwhile.  And third, for most people, their biggest medical expense is their health insurance—which, if you get it through work, it’s already been exempted from your income tax so you can’t use it on your Schedule A.

 

But even though you might not meet the criteria I mentioned above, you might still qualify for some type of medical expense deduction, so please bear with me a little longer.

 

Do you live in a state that has a medical deduction?  Here in Missouri, there’s a deduction for health insurance.  Many people don’t even know about the deduction so they don’t bother with it.  Here’s the thing—if you list your health insurance, your prescriptions, and other medical expenses in the right boxes when you fill out your federal tax return—if you have a state deduction, it will flow through to your state tax return.

 

Why is it important to separate out your expenses and list them in the right boxes?  Recently, I was reviewing a tax return prepared somewhere else.  The taxpayer had several thousand dollars worth of medical expenses, including paying for his own health insurance.  The preparer had totaled up all the expenses and put them all on the “other medical expenses” box.  Now doing this made no difference on the taxpayer’s federal tax return.  But when I separated out the man’s health insurance premiums, it saved him over $200 on his state tax return.

 

This was a Missouri tax return.  Not all states have medical deductions.  But if you don’t take shortcuts when you’re putting the numbers into your federal return, the numbers will flow to the proper spots on the state return.

 

Are you self employed?  If yes, and you pay for your own health insurance, then you don’t have to claim it on the Schedule A—you can claim it on the front of your 1040 form on line 29.  While this isn’t as good as being able to claim it as a business expense where you get to deduct it from self employment tax, placing a deduction on the front of the 1040 is still better than putting it on the Schedule A.  The best part, you don’t even have to file a Schedule A in order to claim it.

 

But suppose you do have enough medical expenses to claim on your schedule A.  You still want to put your self employed health insurance on line 29 first instead of on the Schedule for the best deduction.  Let me explain with an example.  This is going to have a lot of math but the math is just to prove my point.  When you’re preparing your own tax return, all you have to remember is to put your deductions on the right line in the tax software–your software program will do the math for you.

 

A taxpayer aged 65 had medical expenses of about $10,000 of which $4,000 were for his self employed medical insurance.  Let’s assume he had an AGI (adjusted gross income) of $50,000.  If you lump all the medical expenses together, you take 50,000 and mulitply that by 7.5%–that becomes the floor amount;  $3,750.  All of the expenses over the $3,750 are deductible.  $10,000 minuse the $3,750 equals $6,250.  So if you’re in the 25% tax bracket, you’ve saved $1,563–sweet right?

 

But, if you took the $4,000 as your self employed medical insurance deduction first, that $4,000 would come off of your AGI.  So your AGI would be $46,000.  To compute the rest of your medical expense deduction you’d take 46,000 x .075 = $3450–that’s the new floor for claiming your medical expenses.  But now, since you’ve used the 4000 someplace else, you have to take that out of the calculation so now your medical expenses on Schedule A are only 6000.  With me so far?  You take that 6,000 and subtract the 3,450 floor and you still have $2,550 in medical expenses on your Schedule A.  So now, instead of writing off $6,250 you’re writing off $6,550 (the 2,550 plus the 4,000).  Now your tax savings are $1,638–that’s $75 more than before.   All you’ve done here is just move the number to the correct line.

$75 isn’t a lot of money, but wouldn’t you rather have that money in your pocket than give it to the IRS? I thought so.

Posted on by Jan Roberg

Claiming Your Dog on Your Tax Return: Part 1

Seeing Eye Dog

 

The first thing you need to know is that you can’t claim your dog as a dependent on your tax return.  Never!   Don’t even think about it.  There are no special rules for St. Bernard’s or Great Danes.  It doesn’t matter how much your dog depends on you or that he’s a regular member of the family.  A dog can never be claimed as a dependent on your U.S. income tax return.

 

There are only two places where you could claim a dog on your tax return; the first is as a medical expense and the second is as a business expense.   Most importantly, it has to be a legitimate expense.  Dog expenses claimed on a tax return are likely to get audited.   You’ll want plenty of documentation.

 

Let’s look at medical expenses today.  I’ll post about dogs as a business expense later this week.  According to the IRS medical expense publication:  You can include in medical expenses the costs of buying, training, and maintain a guide dog or other service animal to assist a visually-impaired or hearing impaired person, or a person with other physical disabilities.

 

If you have a seeing eye dog or a hearing assist dog, then you’ve got an easily proved legitimate expense.  Note that the IRS definition discusses “physical” disabilities, mental disabilities are conspicuously absent from this category.

 

If your service dog is meant to help with a mental disability, you may be able to claim the animal under “impairment-related work expenses.”   This might actually work out to be an even better deduction than as a medical expense, if you qualify.

 

In order to be considered as disabled to claim an impairment-related work expense, you must have a physical or mental disability that functionally limits your being employed, or a physical or mental impairment that substantially limits one or more of your major life activities such as performing manual tasks, walking, speaking, breathing, learning, or working. 

 

I cannot stress enough the importance of legitimacy here.   You can’t just go online and purchase a “service dog” vest for your pooch and take him to work with you.  The service your dog provides must be necessary for you to do your work in a satisfactory manner.

 

Here’s a question to ask yourself—if you were to be audited for your dog expense, could you obtain written letters from your doctor and your employer that your dog is necessary for you to work?  This is important.  I assisted an audit once where the man had claimed his dog as a medical expense.  The auditor was willing to allow the expense if the man obtained a letter from his psychiatrist that yes, the dog was part of the man’s treatment.  Although the psychiatrist admitted that he had recommended that the man get a dog, he would not issue a letter stating the dog was part of the man’s treatment and the case was lost.  If you intend to claim a dog as a medical expense (other than a seeing eye or hearing assist dog), it is absolutely essential that you have the support of your doctor.