Many seniors (and their families responsible for filing tax returns for them) have gotten into the habit of just claiming the standard deduction instead of itemizing. That’s because seniors typically pay little or no mortgage interest, and they usually don’t owe much for state and local income and property taxes either. So the most common itemized deductions often amount to little or nothing.
Plus, folks age 65 and older get larger standard deductions. All that said, claiming the standard deduction may not be the right answer if an older taxpayer has significant medical expenses.
As you may know, medical expenses can only currently be deducted by seniors to the extent they exceed 7.5% percent of adjusted gross income (AGI) for 2017 and 2018 (down from 10% thanks to the passage of the Tax Cuts and Jobs Act of 2017). In adding up expenses, don’t make the common mistake of forgetting to count Medicare insurance premiums. Together with other out-of-pocket costs, Medicare premiums can easily put you over the percent-of-AGI threshold and also cause an older taxpayer’s total itemized deductions to exceed the standard deduction amount.
Here’s how to find out if a tax bill can be reduced by itemizing.
Identify Outlays that Count as Medical Expenses
To figure out if you have enough medical expenses to benefit from itemizing, add up the following.
Higher-income individuals pay a monthly Medicare Part D surcharge in addition to the plan amount. For 2018, these surcharges range from $13.00 per month to $74.80 per month for each covered person (up from $12.70 to $72.90 in 2017).
These Medicare coverage premiums are generally withheld from Social Security benefit payments. If so, you can find the premium amounts for each year on Form SSA-1099 (Social Security Benefit Statement), which beneficiaries should receive shortly after the end of each year.
|Age on 12/31/18
|Maximum Deductible Amount
|61 to 70
|$ 4,160 ($4,090 in 2017)
|$ 5,200 ($5,110 in 2017)
Add Qualifying Medical Expenses and Subtract 10% of AGI
As mentioned earlier, most Medicare participants can claim itemized deductions in 2017 and 2018, for medical expenses to the extent the expenses exceed 7.5% of AGI. For example, say your 2017 AGI is $80,000, and you have $15,000 of medical expenses from the preceding list. Your itemized medical expense deduction is $9,000 [$15,000 minus $6,000 (7.5% of your $80,000 AGI)].
Do the Final Calculations
As you can see, you can claim a significant itemized deduction for medical expenses (even after subtracting the percent-of-AGI threshold), the next step is to identify any other potential itemized deductions for the year. These can include (among other things):
Add these to your medical expense deduction, and see if the total exceeds your standard deduction amount of:
Obviously, if your total itemized deductions exceed the applicable standard deduction amount, you should forgo the standard deduction and instead claim itemized deductions, on Schedule A of Form 1040, when you file your return.
Note: If a senior taxpayer is self-employed and qualifies for the self-employed health insurance deduction (available for itemizers and non-itemizers), you may be able to add Medicare health insurance premiums to your self-employed health insurance deduction. Contact your tax adviser if this issue affects you.
You May Be Eligible for a Refund
If you do the calculations explained in this article, you may discover that itemizing is the way to go. If you failed to itemize for earlier years, you can usually recoup the tax savings for up to three earlier years by filing amended returns and receiving a refund. However, it’s much easier to simply get it right the first time. Contact your tax advisor if you’re interested in filing amended returns or want additional information.