I have a medical expense coming up should I deduct it this year, next year or split it?

Question

I am doing IVF in Jan, but can pay for it in Dec. I know that once I hit 7.5% I can deduct that from my taxes (which we are doing itemized) I have about 20% of my income going towards this, so my question is. Should I deduct it from this years taxes, pay for it in Jan and deduct it next year, or pay 1/2 in Dec. and 1/2 in Jan. so I can deduct it both years?????

Answer 1

Don't split it because you will have to meet 7.5% in each year.

Assume your income is $100,000 (for simplicity reasons). Every medical expense over $7,500 is an itemized deduction. If your total expense is $20,000, and you split it. You will be limited by $7,500 in each year. Your net deduction will only be $2,500 each year.

I would pay it in December... Take the deduction early and recognize the benefit.

If you wait until the next year and your income is higher, the 7.5% floor will also be higher, minimizing your deduction.

If your income is lower, your floor will be lower, increasing your deduction.

Your max benefit would be in the year which your income is the lowest. If you don't expect your income to change by much, recognize it in 2007.

Answer 2

Don't split it unless you will still be over the 7.5% of your expenses for both years with other medical expenses - otherwise you'd have to subtract the 7.5% both years.

You might be ahead to wait for next year to pay and deduct it, since the meds you'll be taking are expensive too and that way you'd get the deduction for those also.

Good luck on the IVF. I have twin grandsons almost 2 yrs old from IVF at Shady Grove in Maryland. I hope the IVF works for you too.

Answer 3

I would pay all at once if possible and not split the payment. You have to exceed the 7.5% floor only once that way. Figure each year and do the year that gives you the biggest tax reduction.

Answer 4

If you expect a big jump in income next--to the next marginal rate--year pay it in 2008 otherwise do it in 2007