The cost of healthcare has been on an upward trajectory for years. With proper planning, taxpayers could take advantage of deducting medical expenses in 2018, but only if you itemize and have enough expenses to exceed 7.5% applicable floor. At the same time, several taxpayers might not benefit from the deduction due to the increase of the standard deduction under the Tax Cuts and Jobs Act (TCJA).
Various limits apply to most tax deductions, and one type of limit is a “floor,” which means expenses are deductible only to the extent that they exceed that floor (typically a specific percentage of your income). One example is the medical expense deduction.
Because it can be difficult to exceed the floor, a common strategy is to “bunch” deductible medical expenses into a particular year where possible. The TCJA reduced the floor for the medical expense deduction for 2017 and 2018 from 10% to 7.5%. So, it might be beneficial to bunch deductible medical expenses into 2018.
Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible.
However, if your total itemized deductions won’t exceed your standard deduction, bunching medical expenses into 2018 won’t save tax. The TCJA nearly doubled the standard deduction. For 2018, it’s $12,000 for singles and married couples filing separately, $18,000 for heads of households, and $24,000 for married couples filing jointly.
If your total itemized deductions for 2018 will exceed your standard deduction, bunching nonurgent medical procedures and other controllable expenses into 2018 may allow you to exceed the applicable floor and benefit from the medical expense deduction. Controllable expenses might include prescription drugs, eyeglasses, and contact lenses, hearing aids, dental work, and elective surgery.
Planning for Uncertainty
Keep in mind that legislation could be signed into law that extends the 7.5% threshold for 2019 and even beyond.
Please contact your local Blue & Co. advisor if you have any questions on determining whether bunching medical expenses in 2018 would be beneficial.