8 Things People with Diabetes Should Know to Save Money on Taxes
You may be able to claim some additional deductions on your taxes if you live with type 1 diabetes or type 2 diabetes. We’ve rounded up the best tips from tax experts to help you accurately file and get a maximum tax refund. Here are 8 things people with diabetes should know to save money on taxes
1. What Are Qualifying Deductions Based On?
Tax experts say you can only deduct the unreimbursed medical expenses you incur that exceed 7.5 percent of your adjusted gross income (AGI).
This number is not the same as your taxable income.
- Suppose your AGI last year was $40,000.
- Multiply it by .075 to get $3,000.
- You would deduct the difference if you spent over $3,000 last year for your medical expenses.
For example, if you paid $3,250, then $250 worth of your unreimbursed medical costs may qualify for deductions.
Keep in mind, however, that only certain medical expenses are deductible.
2. What Unreimbursed Medical Expenses are Deductible?
Items that qualify for deductions include:
- Medications prescribed to you by your doctor to treat your diabetes
- Other out-of-pocket medical expenses such as:
- Additional prescriptions (not over-the-counter)
- Hospital and doctor visit payments
- Weight-loss and other doctor-recommended programs
- Miles driven to and from your doctor even qualify!
The IRS lists most qualifying medical and dental expenses here.
3. Itemizing Your Deductions
Itemized deductions are expenses allowed to decrease your taxable income—and another good reason to track your medical expenses throughout the year.
In contrast, standard deductions are a flat-dollar, no-questions-asked deduction in your AGI.
There is a long list of itemized deductions from the IRS.
If you plan to use a software program and do it yourself., TurboTax explains the process for itemizing your deductions.
If you’d rather lean on a tax expert to file for you, you probably don’t have to worry about this.
4. Should You File a Standard Deduction or Itemize Deductions?
Nerd Wallet explains that you can either take a standard or itemized deduction.
You can’t do both!
If your standard deduction is less than your itemized deductions, you should itemize—and vice-versa.
Tax filing can be confusing. To ensure you follow the best deduction route for yourself—and have a realistic view of your filing options—enlist the help of a tax expert or guided-tax-software program.
Nerd Wallet reports that standard deductions for this tax filing year for different filing statuses are:
- $12,550 – Single
- $18,800 – Head of Household
- $25,100 – Married, Filing Jointly
- $12,550 – Married, Filing Separately
5. What Are the Benefits of Itemized Deductions?
Itemized deductions may get you a more significant tax return than a standard deduction.
Furthermore, there are hundreds of deductions listed by the IRS—some of which you may qualify for.
You may even find that you have qualifying deductions beyond your medical expenses—making itemizing your deductions an even better option!
6. What are the Disadvantages of Itemized Deductions?
If you don’t understand how to itemize, you might incorrectly file and incur fees from the IRS down the road.
Some tax professionals and software programs may also charge you more for itemizing your deductions.
If you don’t have proof of your expenses, you can’t itemize either.
More power to you if you want to go and find all of your receipts and invoices! However, not everyone has the time, resources, or energy to do this.
Some receipts and invoices might be lost to the void of bottomless purses, storage bins or medical cabinets.
If you didn’t organize your expenses, you might be out of luck for this year’s tax filing deadline.
Don’t fret if you fall into this scenario. Instead:
- Create a spreadsheet and folder to potentially save money when filing next year’s taxes.
- Set calendar reminders at the end of each month or every two weeks (whatever works best for your brain) to catalog and consolidate your medical expenses so that you don’t miss out next time.
7. What is the Best Tax-Filing Service?
You may consider working with a local tax expert to give back to small businesses.
Due to varying economic statuses and regional availability, however, this may not be an option.
If you prefer to use a software program to help you, some of the top programs incclude:
- TaxAct
- TurboTax and
- H&R Block
Each of these software programs offers plans to review your taxes in real-time with an expert.
Prices vary by plan.
Ask around, and do a little window-shopping before committing to a local in-person expert or online tax program.
8. Become a Medical-Expense-Organizing Guru (or appoint someone in your household to be)
If you haven’t thought about organizing your medical expenses until reading this, it’s not too late for next year.
You can do anything you set your mind to, including correctly filing and preparing your taxes. Just find an organizational method that works for you.
To assist you, don’t be afraid to enlist the help of a family member of friend. Getting someone else involved will help to ensure accountability and increase your chances of getting organized for the filing deadline.
Even if you end up claiming a standard deduction in 2023, you will at least have the option of itemizing deductions. Knowledge is power and potentially a more considerable tax refund!
Tax filing and budgeting with diabetes go hand-in-hand.
Learn more about the impact of diabetes on your budget in this three-part series:
