How to Report Tax Deductions for Medical Expenses

Itemized Returns and Ineligible Medical Expenses

The idea of filing an itemized tax return can seem intimidating, but it isn't really that difficult -- it just requires keeping better records of your expenses throughout the year. Ideally, each year you should itemize your taxes, then check against the standard deduction (which varies depending on whether you're single, married, filing jointly or separately, and so on) and see which one gives you the biggest tax savings.

If you want to deduct your medical expenses, you'll have to itemize, so here's a quick look at how: gather your records for the year, including mortgage interest statement, receipts for medical and business expenses, charitable donations, real estate taxes, and more (it's a long list beyond the scope of this article). Then, get a Form 1040 and a Schedule A, or select the appropriate options on your tax software of choice. This is different from the standard deduction, which uses the 1040A or 1040EZ forms. So, aside from some extra record-keeping and a different form, itemized taxes aren't so bad.

Now you want to start adding up all the medical expenses for the year to see if you pass the threshold. There's a short list of expenses that do not qualify. We've already mentioned expenses paid from a tax-free account like an HSA. You also can't deduct expenses that were paid for or reimbursed by your insurance. Cosmetic procedures are not allowed either.

Finally, you can't deduct expenses you didn't pay for this year. In other words, if you had surgery in September 2014, were billed for it in December 2014, but paid the bill in January 2015, that's a deduction for your 2015 tax bill.

So what can you deduct? It might be easier to hit the AGI 10 percent threshold than you think. We'll explain how next.