Wednesday, January 21, 2015

How to deduct health-insurance premiums

Bill Bischoff for MarketWatch writes: With the ever-increasing cost of health care, you should be ever-vigilant in looking for chances to claim tax breaks for medical expenses. Here’s the story on health-insurance premiums that you can potentially deduct on your 2014 return.

Deductible medical expenses
As an individual taxpayer, you can potentially claim an itemized deduction for qualified medical expenses, including health-insurance premiums. However, to actually claim a deduction on your 2014 return, your total qualified expenses, including eligible health insurance premiums, must exceed 10% of your adjusted gross income (AGI) or 7.5% of AGI if you, or your spouse if you are married, was age 65 or older as of Dec. 31, 2014. AGI is the number at the bottom of the first page of your Form 1040; it includes all taxable income items and selected deductions such as alimony paid, student loan interest (up to $2,500), and moving expenses.
If your total qualified medical expenses don’t exceed the applicable percent-of-AGI threshold, you get no write-off. Sorry. That’s why it’s important to identify all qualified expenses that you can throw in the pot, including health-insurance premiums.

General rule for deductible health-insurance premiums
In the medical expense pot, you can include premiums for health policies that cover doctors and hospitals (so-called major medical coverage), dental care, vision care, and specialized health policies that cover things like accidents and cancer. You cannot deduct premiums for insurance that cover loss of limbs or loss of earnings due to illness or injury.
Premiums for Medicare insurance
Just a couple of years ago, the IRS finally admitted that Medicare insurance premiums count as qualified health premiums for purposes of the itemized deduction for medical expenses. Some tax pros, including yours truly, had long believed this to be true, but the Form 1040 instructions and IRS publications provided no support. Now they do (see IRS Publication 502, Medical and Dental Expenses at the IRS website.) There are several different kinds of Medicare insurance. Here are the details.
Medicare Part A is commonly called hospital insurance coverage. Most eligible individuals are automatically covered for Part A without having to pay premiums because the Part A premiums are considered to be paid from Medicare taxes on wages while the individual (or spouse) was working. However, some individuals must pay premiums to get Part A coverage. If that’s your situation, the Part A premiums for 2014 could have been up to $426 a month per covered person (up to $5,112 per person for the whole year).
Medicare Part B is commonly called medical insurance coverage, and Part B together with Part A is often called “original” Medicare. Part B mainly covers doctors and outpatient services, and most people must pay monthly premiums for this Medicare cornerstone. For 2014, most folks paid the standard Part B premium of $104.90 a month ($1,259 per person for the whole year). Higher income individuals could have paid up to $335.70 a month for 2014 (up to $4,028 per person). As you can see, we can be talking about significant dollars here — especially if you are married and both you and your spouse paid Part B premiums last year.SNIP.  The article continues @ MarketWatch, click here to continue reading...


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