When To Take a Medical Tax Deduction

Christine Simone
February 7, 2024

A common question financial advisors and tax professionals hear from clients during tax prep is, “Should I take the standard or itemized deduction?” And of course, the answer is that it depends. Even if you or your client suspect that the standard deduction will be more beneficial than an itemized deduction, it’s still worth checking. Unfortunately, many people don’t even compare and jump straight to choosing the standard deduction. In fact, 90% of taxpayers choose to claim the standard deduction, meaning that thousands of people are likely missing out on major savings. 

One of the ways to determine if your client should take an itemized deduction rather than the standard deduction is to determine how much they spent on healthcare costs last year. Taxpayers can deduct their qualified, unreimbursed medical care expenses that exceed 7.5% of their AGI. For example, if your client has an income of $182,000 they can deduct medical expenses that exceed $13,650. So if they spent $23,473.04 total in healthcare expenses, they’d be able to deduct $9,823.04. 

It’s important to note though that expenses paid for from an FSA (Flexible Spending Account) or HSA (Health Savings Account) aren't deductible because the money in those accounts is already tax-advantaged. To help you and your clients get the most out of tax savings, let's look at the healthcare costs that qualify as a medical tax deduction. This information will also be helpful to keep in mind for this year to better prepare for tax filing season next year.

Preventive care

Preventive care services are routine healthcare services meant to catch, or “prevent”, health issues from becoming serious. Preventive care is also care meant to prevent illness and disease. Routine screenings, check-ups, and patient counseling all fall under preventive care services. So if your client paid out-of-pocket for their family’s annual physicals this year, they could technically claim that expense as a medical tax deduction.

Surgeries

If your client paid out-of-pocket for any surgeries last year, they can claim it as a medical tax deduction. If your client is anticipating any planned, non-emergency surgeries this year, keep this cost in mind when thinking about tax planning for next year. Surgeries are notoriously expensive, whether someone has health insurance or not. The silver lining in the high cost is that if it’s at least 7.5% of your client’s income or higher, they can claim that as an itemized deduction.

Dental and vision care

Medically necessary dental care is tax deductible, but cosmetic dentistry is not. For example, veneers or teeth whitening are not tax deductible, but routine cleanings, sealants, fillings, braces, dentures, and other medically necessary dentistry is deductible. Vision care, including LASIK surgery, is also tax deductible. 

Psychologist and psychiatrist visits

If your client receives mental health care, they might be able to deduct it from their taxes. This is especially helpful since many therapists and counseling services don’t accept health insurance, meaning clients end up paying completely out-of-pocket. 

Prescription medications 

The keyword here is “prescription.” Over-the-counter medications aren’t eligible for tax deductions, but prescription medications are. As with all of the eligible expenses listed in this blog, your client will need to keep a record of their transactions.

Medical appliances and travel

By “medical appliances” I (and the IRS) mean glasses, hearing aids, wheelchairs and other mobility aids, contacts, false teeth, etc. All of these items are tax deductible. Travel taken specifically for medical appointments is also tax deductible. If your client paid a taxi driver or medical transport company to take them to medical appointments and have a record of receipts, they might be able to deduct the cost from their taxes. Public transportation costs incurred from going to and from medical appointments are also tax deductible.

Final thoughts

So why should financial advisors care about any of this? Shouldn’t your clients’ tax professionals be worried about this? The truth is that as a financial advisor, your client comes to you about more of their life events than they do their tax planner. If you know that your client’s child received braces last year because it happened to come up during a client meeting or they specifically brought it up because it’s a cost they needed to factor into their financial plan, you can ask them how much they paid out-of-pocket and let them know that it and any other out-of-pocket medical costs they incurred last year are tax deductible. You can then advise and help them to at least add up these medical costs to see if they’d get a bigger tax break from doing itemized deductions vs the standard deduction. Similarly, if you know your client is undergoing hip replacement surgery this year, or a different plannable procedure, remind them to save any bills or receipts since this non-fixed, non-annual medical cost will likely make their healthcare expenses higher for this year. Which in turn could potentially make it worth it to do an itemized deduction instead of the standard deduction.

Download "More Than Medicare: How Healthcare Planning Helps Clients Across All Generations"

Download "Supporting Clients Through Open Enrollment: A Collection of Case Studies"

Download "Caribou Customer Success Stories: Jackson Square Capital"

Download the Q2 2023 Caribou Healthcare Planning Report

Medicare Eligible & Still Working: A Case Study on How To Save Clients Thousands When They Are Working Past 65

The Key to Growth for Financial Firms: Healthcare Planning

Download the Q1 2023 Caribou Healthcare Planning Report

The Financial Advisor's Guide to Healthcare and Taxes

White Paper
Financial Planning's Missing Pillar: Healthcare Planning

2022 Marketplace Open Enrollment Report

2022 Medicare Open Enrollment Report

Download the Q3 2022 | Caribou Healthcare Planning Report

Using The Most Common Life Events To Bring Healthcare Planning Into Financial Plans: A Caribou Case Study

Healthcare Planning Data Insights: Medicare Open Enrollment

Download the Q4 2022 Caribou Healthcare Planning Report

Download 2023 | The Financial Advisor's Guide to Open Enrollment

Healthcare Planning Data Insights: Marketplace Open Enrollment

Download the Q2 2022 | Caribou Healthcare Planning Report

Download The Secret to Better Client Retention for Financial Advisors: Healthcare Planning

Download Healthcare Planning & Early Retirement: A Guide for Financial Advisors

Download "From $40K in Annual Drug Costs to $4K: A Caribou Case Study"

Download Healthcare Planning 101: A Starter Guide for Financial Advisors

Download the Caribou Case Study “Over 75% Savings in Health Plan Premiums & an Avoided Crisis”