You've certainly been told some expenses, like commuting and work clothes, will decrease in retirement. Other expenses, the standard advice goes, will increase. The most likely culprit? Medical expenses. Despite the expected additional time to be spent in doctor's offices, hospitals, and the occasional walk-in clinic, a silver lining just might be found on your tax return.
Are Medical Expenses Deductible?
Most medical expenses are deductible. The primary exclusions are those which are more cosmetic in nature, like laser eye surgery and teeth whitening. But the typical hip replacement surgery, prescription drug, or even nursing home care is tax deductible.
Subtract the Reimbursements in Calculating Your Medical Expense Deduction
To be fair, you can never deduct any payment you make which is reimbursed. This makes sense, since you didn't really pay the bill in such a situation after all.
Health Insurance Premiums are Deductible!
One deductible medical expense might surprise you: the health insurance premiums you pay can also be added to your total of deductible medical expenses. This includes, of course, any Medicare premiums.
Limits on the Helpfulness of the Medical Expense Deduction
While numerous types of medical expenses are deductible, you must itemize in order to take the medical expense deduction. This means the total of your itemized deductions must exceed your standard deduction. This can often be a challenge for older Americans, since the standard deduction increases once you hit age 65 and/or are blind. Even if you itemize, furthermore, medical expenses are only deductible to the extent they exceed 7.5% of your adjusted gross income (AGI). Here's where your presumably lower income is an asset; because your AGI is lower, so is the threshold by which your medical expenses must exceed in order to provide you with a tax benefit.
Save those receipts - Uncle Sam just might help you out with a medical expense deduction!