The Medical Expense Deduction

The Basics

According to the IRS, ?if you itemize your deductions on Form 1040, Schedule A, you may be able to deduct expenses you paid that year for medical care (including dental) for yourself, your spouse, and your dependents. A deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription, except for insulin.?

7.5% Rule

To qualify for the medical expense deduction your total expenses need to total at least 7.5% of your adjusted gross income. This includes any qualifying expenses that you incurred during the tax year, regardless of when the medical services were provided.

Spouse, Children, and Dependents

In addition to your own medical payments, you can also deduct expenses paid for your spouse, children, and dependents. You can deduct the expenses for a dependent even if you are not able to claim them as an exemption on your current tax return. In order to be eligible, the person must qualify as your dependent at the time you paid for their medical expenses.

Travel Costs

One of the most frequently forgotten parts of calculating medical expense deductions are travel costs. The IRS allows you to deduct all expenses related to traveling to and from medical treatments using the standard mileage rate for the year.

Allowable Expenses

The IRS has a whole list of allowable expenses. To view the list download IRS Publication 502.

Claiming the Deduction

When you prepare your federal income tax return you will want to include your total medical expenses (as long as they exceed 7.5% of your adjusted gross income) on Schedule A of your IRS Form 1040.

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Prepaying Your Mortgage ? The Pros And Cons

If you have looked into wealth building strategies, you have undoubtedly stumbled upon the raging debate over prepaying one's mortgage. Here is the objective scoop.

Prepaying Your Mortgage ? The Pros and Cons

When paying a mortgage, one is in the unique and unfortunate position of having to pay a lot of interest over a long period of time. Depending on the value of your home, you can easily expect to pay hundreds of thousands of dollars over the life of a 30 year loan.

Advocates on one side of the isle suggest that paying even a few extra hundred dollars a month against your principal will save you tons of money over the life of the loan. Others feel this is lunacy as the money can be used for other purposes. As is often the case, both parties are partially right and partially wrong.

If you purchase a home with a 30 year loan and live in the home for 30 years, you will pay a draconian amount in interest. In such a situation, paying a few hundred dollars more in principle each month will save you tens or hundreds of thousands of dollars in interest over the 30 years. The question, however, is whether this makes sense for you in the real world.

The first issue to consider is how long you intend to live in the home. In our modern transitory society, most people don?t plop down for long periods. If you are going to sell your home in five or seven years, the extra payments on the balance of your mortgage are not going to make much of a difference. On the other hand, making such payments makes sense if you are definitely in it for the long haul.

The second issue is the mortgage interest deduction. Many people fall in love with the deduction. Obviously, yours will fall if you start paying off your loan ahead of time. Typically, you will not see a big drop off for at least five years, but it is something to keep in mind.

The third issue is alternative money usage. Specifically, would you be better off using the money in another way. Historically, the stock market has returned a little less than a 10 percent rate of gain. While each year brings different results, some believe you are better off to invest this money in the market since you will be earning more at 10 percent versus paying off a 7 percent loan. This argument tends to forget one small thing, to wit, capital gains tax you will have to pay on any stock market gains. There is no correct answer, so make sure to analyze your situation.

All and all, the decision to prepay a mortgage is a personal one. Take a stark look at your life and determine if it makes sense in your situation.

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