Income Tax Question......

[Dood]

A friend has some pretty large medical bills in 2002 that were not covered by insurance....approx. $35,000. How will this affect his tax liability?? Income is in the $75k range.

Thanks

 

[911paramedic]

They have to exceed his standard deduction for it to be of any benefit, and it sounds like it will do just that. It will have to be itemized though.

 

[Linflas]

Whatever he paid towards the bills in 2002 can be listed in the medical bills portion of the itemized deduction form. IIRC there is a test on the form to see if the amount paid is high enough to deduct but since I have never had bills like that is all I really know about it.

 

[Dood]

The bills were 100% paid in 2002.

 

[Linflas]

Right from the IRS publications for Form 1040A Schedules A&B:

Medical and Dental
Expenses
You may deduct only the part of your medical
and dental expenses that exceeds 7.5%
of the amount on Form 1040, line 36.
Pub. 502 discusses the types of expenses
that you may and may not deduct. It also
explains when you may deduct capital expenses
and special care expenses for disabled
persons.

 

[EagleKeeper]

7.5% of gross Income is approx $5675.

Therefore $35,000 - 5675 = 29325 would be roughly what is deductable.

That amount will also raise a red flag with the IRS for that tax return and the previous two years, along with the next couple after this on.

 

[kherman]

Originally posted by: EagleKeeper
7.5% of gross Income is approx $5675.

Therefore $35,000 - 5675 = 29325 would be roughly what is deductable.

That amount will also raise a red flag with the IRS for that tax return and the previous two years, along with the next couple after this on.

Why would that raise a red flag? Just because it is a ratherlarge deducation???

 

[Yossarian]

Originally posted by: kherman
Why would that raise a red flag? Just because it is a ratherlarge deducation???

Yep. Plus it would look unusual compared to his previous returns. In other words, he shouldn't be too aggressive with the rest of his return because he is more likely to be audited.

 

[BrunoPuntzJones]

Originally posted by: PipBoy

Originally posted by: kherman
Why would that raise a red flag? Just because it is a ratherlarge deducation???

Yep. Plus it would look unusual compared to his previous returns. In other words, he shouldn't be too aggressive with the rest of his return because he is more likely to be audited.

Good advice ^^

 

[kranky]

While I would never want any troubles from the IRS, I don't hesitate to claim every legal and substantiated deduction I'm entitled to. Yes, it will look odd, but assuming he has all the documentation, he should claim everything. Don't forget things like mileage for driving back and forth to doctors and hospitals, over the counter purchases, etc. There are quite a few things that fall under medical expenses which no one cares about unless (like your friend) you can get over the 7.5% limitation.

If they question it, it's very likely he'll only need to mail in copies of his receipts, and that will be the end of it. Most times when the IRS questions something, they ask only for documentation of the specific item they are questioning. So it doesn't make sense to not claim things in other areas if you are entitled.

Claim only what you can document.

 

[Dood]

Thanks for the input. He has a professional do his taxes so everythin is squeaky-clean. Documentation will not be a problem (you would tend to retain everything on an unusual expense like this), but no one enjoys the hassles of an audit.