Tax Planning 101 - Medical Expenses

Here’s a hint for those of you who might be spending a fair bit on medical expenses.

What we do at tax time is take the full amount you’ve spent on medical expenses throughout the year for your family, less the rebates you were paid, and claim the remainder (your out-of-pocket amount). However, you’ll only get that offset if you’ve spent more than $1500. Then, 20% of all amounts above that figure are used to reduce your taxable income.

In case you’re wondering, some medical expenses that qualify for a rebate are payments to:

• Dentists (except for purely cosmetic work)
• Optometrists (including the costs of prescription glasses, etc)
• Pharmacists (for prescription medicines only)
• Laser eye surgeons
• Guide dog service providers.

As well as the various other costs listed here – and also note the expenses which aren’t included, too.

Anyway, this presents a neat tax planning opportunity for you. If you’ve already spent a fair bit on meds this year, or you’re expecting to soon, or both; it’s certainly in your best interests from a tax point of view to try fitting all those purchases in before July.

Look at it this way; If you spend $1500 in the 09/10 FY, and then $1500 in the 10/11 FY, you’re looking at medical offsets of $0 in both years. Disappointing. However, if you can find a way to gather that cash a little earlier and buy all your meds in the one year, that $1500 (that you were going to spend anyway) can now get you a $300 offset. A very basic example, but it gets the message across.

Stay tuned for more tax-planning tips to come next week!