Hidden Tax Breaks for Retirees

Medical and Dental Expenses

Medical expenses include medical insurance premiums as well as the cost of qualified long-term care services and long-term care insurance contracts, according to the IRS.

David M. Hryck, a New York-based lawyer and personal finance expert with Reed Smith, explained the income tax breaks with respect to health insurance and Medicare premiums, long-term care insurance and prescription drugs, as well as the limits depending on your income.

“In order to take advantage of these breaks and benefits, you need to itemize your deductions,” he said. “Medical and dental expenses are deductible from your income taxes on Schedule A of your tax return.”

Hryck said it’s important to note that there is a limit for individuals age 65 and older and their spouses. “Until 2017, the limit is 7.5 percent of a taxpayer’s adjusted gross income (AGI),” he said. So, medical costs that exceed 7.5 percent of an individual’s AGI are tax-deductible. This is also the case for dental expenses.

For example, if your AGI is $45,000 and your medical expenses are $5,000, multiply $45,000 by 0.075 (7.5 percent), and you’ll find that only expenses exceeding $3,375 can be deducted. This would give a medical expense deduction of $1,625.

To find your medical expense deduction and a more accurate idea of your estimated tax refund, multiply your AGI by 0.075 (7.5 percent). Anything beyond that number is tax deductible as a medical expense. The following table shows scenarios of what your medical expense deduction might be given various AGI and costs of medical expenses.