Tax deductions are a great way to minimize your annual tax bill, but finding all the exemptions you're eligible for can seem daunting. This article will explain how to report tax deductions for medical expenses. If you've had costly medical bills, there's a good chance you can deduct some portion of them.
First, it's important to understand how tax deductions work in general. A tax deduction simply reduces the amount of your income that you're taxed for. In other words, if you earned $40,000 and had $2,000 in medical expenses that you're able to deduct, you're only taxed for $38,000 in income. It's as if you never even earned that $2,000.
To deduct your medical expenses, you typically have to meet three criteria. You have to itemize your tax return, which means listing each deduction and its amount instead of taking the standard deduction (it also uses a different tax form). Your medical expenses must also exceed 10 percent of your adjusted gross income (AGI) -- we'll explain this in a lot more detail shortly. Finally, you can't have paid for your medical expenses through an account that's already untaxed, like a health savings account (HSA) or flexible savings account (FSA). Earnings that are diverted into those accounts avoid taxes to begin with, so deducting medical expenses paid through them would be like getting a double deduction.
Read on to find out what types of medical expenses you can deduct, including some you might not expect. We'll also figure out how to calculate your AGI and talk about medical expenses that can't be deducted.