Year-End Tax Checkup: Maximizing Post-Reform Medical Deductions

Action Steps for Clients at Year-End

After 2018, the AGI threshold returns to 10%, meaning that clients who anticipate that they will have medical expenses in the near future could benefit from accelerating any elective care or health-related purchases into 2018. Clients should also be advised as to the wide array of expenses that qualify as "medical expenses" for purposes of the medical expense deduction.

In addition to obvious expenses such as unreimbursed health insurance premiums, medical procedures and Medicare premiums, costs for items such as bandages, dental and vision care and certain travel and meal expenses may be included. Dental insurance and long-term care insurance premiums are also deductible, as are prescription drug costs.

While many clients may fail to realize that they qualify for the medical expense deduction, when health insurance and Medicare premiums are taken into account, it may be easier than anticipated to qualify. For example, a client with annual gross income of $100,000 would only need to spend $626 per month to qualify for the deduction—a feat easily accomplished for clients who are paying their own insurance expenses.

While expenses that count toward the medical expense deduction are far-ranging, the client must also itemize in order to take advantage of the more generous 7.5% threshold — meaning that the sum total of all of his or her itemized deductions must now exceed the high 2018 standard deduction amount, which is $12,000 for a single filer or $24,000 for joint returns.  Unless the client's medical expenses are significant enough to cross both the 7.5% of AGI threshold and the standard deduction hurdle, the benefit will be lost.

For clients close to the line, the "bunching" of variable itemized deductions into a single year could help add value to their itemized deductions. Some clients might consider accelerating charitable deductions into 2018, for example, and should evaluate whether they have deductible state and local taxes or mortgage interest expenses to add into the mix (remembering the new limits tax reform has placed on these deductions).

Conclusion

Clients have only a few short months to determine whether taking advantage of the more generous medical expense deduction makes sense based on their individual circumstances. In many ways, 2018 may be the most valuable year to plan for itemized deductions post-reform, but the clock is ticking on the various strategies that clients can use to cross the standard deduction hurdle.

• See previous coverage of postretirement healthcare planning in Advisor's Journal.
• For in-depth analysis of the various income tax deductions, see Advisor's Main Library.
• Your questions and comments are always welcome. Please post them at our blog, AdvisorFYI, or call the Panel of Experts.