Helping Clients Reduce Tax with Medical Deductions

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

Register to hear Christine speak at our Market Outlook Summit on April 5.

We’re in one of the busiest times of the year: tax season.

Except for those who love number-crunching, few clients look forward to tax preparation. It is one of the most stressful times, especially if clients don’t fully understand how tax planning fits into their comprehensive financial plan.

An important part of tax planning is medical expenses, which add up quickly. Your clients (including spouses and dependents) will have medical expenses throughout the year, and hanging onto those receipts could save them money this year.

Tax-planning knowledge benefits your clients financially through better money management. You can help them learn how and when to claim medical expenses for their household. All clients have different healthcare expenses throughout the year, and this is especially true if a household has incurred or paid large out-of-pocket medical expenses, or if their itemized deductions are greater than the standard deduction for the year.

Medical and dental expenses are tax-deductible Schedule A itemized deductions (Form 1040 or 1040-SR), but it’s not always obvious which expenses can be claimed or how to go about collecting this information.

The standard versus itemized tax deductions

The standard deduction in 2021 for single filers is $12,550 and $25,100 for joint filers. Additionally, for those aged 65+ or legally blind, the standard deduction is $1,350 higher, or $1,700 higher if unmarried and not a surviving spouse.

You’re likely thinking your clients don’t have a shot at beating the standard deduction and coming out ahead. Although it’s true that the Tax Cuts and Jobs Act has made it less likely for some individuals to benefit from itemizing deductions, the only way to find out if your clients will benefit is to help them with itemized deductions and compare those to the standard deduction to determine which results in a lower tax bill.