One thing we hear repeatedly from people we speak to is, "I can just deduct all my medical expenses on my Federal income taxes when I file. What's the point of using an Idaho MSA if I can do that?"
That's a great question and we will certainly address it in this blog post. However first and foremost, there is a major misconception among the general public when it comes to deducting your medical expenses from your Federal income.
We sat down with Tom Czarniecki, CPA of Czarniecki & Company to get the a straight answer on the in's and out's of medical tax deductions, so we could come back and explain the situation to everyone else in simple terms.
After speaking at length with Tom the fact of the matter is, you can only deduct what's over the threshold!
Let's back up a minute here, for all of you who aren't CPAs and don't really know what I mean by "the threshold".
The Threshold, Explained
In order to deduct your medical expenses on your Federal income tax return, you must meet "the threshold", which simply means you spent more than 10% of your adjusted gross income (AGI) on those medical costs. So for a simple example, let's say you made $100,000 last year. You spent $10,000 (or less) on medical expenses. You cannot deduct a nickel. Conversely, if you made $100,000 last year and you spent $10,100 on medical, you could then deduct $100, because that is over your 10% threshold.
Most people do not even come close to meeting this requirement, and therefore cannot deduct their medical expenses on their Federal returns. So when trying to save money by seeing if you can deduct your medical expenses, this is usually where the road ends for most people.
For Everyone Who Doesn't Meet the Threshold
If this person is you, this exactly why you'd want to utilize an Idaho MSA. This account allows you to deduct all of these medical expenses first dollar regardless of who you are, your age, what you make, or how much you spent on medical. It's a simple line item deduction when you file, and it's a big one at up to $20,000 per year. It isn't a Federal deduction, but 80% of something is always better than 100% of nothing. Or as my Grandpa always said, "It's better than a poke in the eye with a sharp stick."
If you want to see how much you could save, check out our free Idaho MSA Savings Calculator! Just punch in what you spend on premiums, dental, vision, prescriptions, etc. and it will automatically tally what you spend annually, plus show you what you can save on your taxes simply by routing that money through the Idaho MSA!
For Everyone Who Does Meet the Threshold
As for the other side of the coin, let's assume you are one of the lucky few making up the minority that does hit "the threshold". Congratulations, but this is hardly a free-for-all deduction party. Here's the big kicker that 90% of the public doesn't understand, and as I mentioned above: You can only deduct what is over the threshold.
Let that sink in for a second. You've spent over 10% of your AGI for the entire year on medical costs, but you're not getting a deduction for one nickel that was part of that initial 10%. You're only deducting everything that was over that first 10%! For many people spending that much money, that's a huge piece of their income they're simply paying out-of-pocket and getting nothing to show for it in return.
So to back to our original question...why would someone who hits the threshold and deducts their medical expenses want to use an Idaho MSA? That answer is quite simple. In order to save money on the 10% you spent out-of-pocket that you're not able to write off, even though you have the ability to deduct what was over that amount!
If you're in this camp and you're wondering what that number looks like, check out our free Idaho MSA Savings Calculator! Put in whatever amount equates to 10% of your AGI for the year, and the calculator will show you exactly what you'll save on that money as opposed to just paying it out-of-pocket and getting nothing in return.
A "No-Brainer", All Around
For the majority of people who don't meet the 10% AGI threshold, the Idaho MSA's a no-brainer. You have no other way of deducting anything, so why would you not simply route the money you're spending on premiums and other eligible medical expenses through this account? You'll be saving money on your State income taxes first dollar, all the way up to a $20,000 max per year.
Even for those people who can deduct their medical, you're still losing out on every dollar up to that 10% AGI. Using an Idaho MSA to pay your medical expenses is also a no-brainer for all of you, because it provides you a vehicle that allows you to recoup some additional savings on those dollars for which you would get nothing...even though you can deduct everything else above the 10% threshold!
Have Questions? We Love Them!
Tax law is some complicated stuff and it's no surprise most people don't understand these rules and how they apply to their own individual (and often fluctuating) situation. We're definitely not CPAs, but when it comes to the Idaho MSA and how you can best utilize it to your benefit we've got you covered. We handle everything from the mundane to the extreme every day, so please don't hesitate to contact our office and we'll tell you exactly how an Idaho MSA can help you and your family save the most money possible on your healthcare costs.
To all our existing clients, we appreciate your business! And to those we don't yet work with, we look forward to the opportunity to serve you. Have a fantastic day and thanks for reading!