We smile, we chew. We grit and we grind. Day in and day out we use our teeth. If you think about it, they never get a day off. Many of us go to the dentist regularly for check-ups, teeth cleaning, and the occasional cavity. At some point, though, the fillings we got in our youth have been at work for decades and they’re unstable. They’re in danger of cracking the teeth they were put in place to preserve and, let’s face it, those years of Jolly Ranchers had to catch up to us at some point. Good dental hygiene can only go so far and there comes a time when we need major dental work done. I call this the Year of the Dentist. Crowns, bridges, and implants become part of our daily conversations because in the Year of the Dentist, we’re spending a lot of time in the chair. It’s not just time either. We’ll be spending a lot of money, too. Most dental insurance covers only a portion of what is needed to tackle all that deferred maintenance so restoring our smile to its proper glory usually involves money out of pocket as well. On the bright side, where there is expense, there is also opportunity. With just the right planning you can save money.
Dr. Dawn Wehking, DDS, is the owner of Complete Family & Aesthetic Dentistry located in Lafayette, Colorado. According to Dr. Wehking, there is a number of situations where patients require significant dental work. Auto accident victims, hockey players, and the occasional loser of a bar fight need dental work in a hurry just to be able to eat and drink without pain. In other instances, major dental work is needed to help a patient recover from years of neglecting their teeth. Over time, though, even patients who have taken care of their teeth may need some major tooth repairs. “The cement used in old fillings breaks down and this can lead to cavities under the teeth,” Dr. Wehking says, “Sometimes teeth crack and need to be replaced with crowns. We also see patients who grind their teeth so severely we need to replace many of those as well.” Insurance only covers a portion of the cost and the expense can be substantial. You can’t minimize the amount of work that needs to be done but there are steps you can take to use these dental expenses to minimize something else: your taxes.
If this is your Year of the Dentist you may be able to save thousands of dollars through strategic tax planning. Dental and medical expenses are tax deductible so tax planning can help you reduce your tax bill for the year. Of course, there are rules and restrictions that apply but the earlier in the year you begin planning, the larger your potential tax savings can be. Let’s walk through the rules so you understand what you’re eligible to deduct.
1. The expenses are deducted through Schedule A: Itemized Deductions. If you pay state income taxes, mortgage interest, or make charitable donations, chances are you’re itemizing your deductions.
2. You’ll notice on the example above that there is a threshold. In order to deduct dental and medical expenses they have to add up to more than 10%* of your Adjusted Gross Income (AGI). That’s why your Year of the Dentist can pay off. In a normal year, you might not have enough medical bills to qualify and that’s okay because it means you were healthy!
*If you or your spouse is age 65 or older, the AGI threshold is only 7.5% through December 31, 2016.
3. Eligible expenses are only for what you paid; not for bills that were reimbursed by insurance or paid by others. Expenses paid with Flexible Spending Account (FSA) or Health Savings Account (HSA) dollars are not eligible.
With the general rules in hand, let’s take a look at the strategy. In the Year of the Dentist, you probably have dental bills that exceed what your insurance coverage allows. Start a file or a folder and save all your medical and dental receipts – prescriptions, medicines, acupuncture treatments, chiropractic care, therapy, health insurance premiums you are paying (not your employer), and even a portion of your long term care insurance premiums. Make this the year you take care of all your physical and mental ‘deferred maintenance’ – not just your teeth. Get that new pair of eyeglasses or LASIK eye surgery. The list of eligible expenses is lengthy so the IRS has detailed explanations in Publication 502 Medical and Dental Expenses . Look through the list and make note of all the expenses that apply to you. Track your mileage to and from the dentist’s office and doctors’ offices. This, too, is deductible at a rate of 23 cents a mile. Short trips add up so it’s worth tracking. If you are married and/or have dependents, save receipts and track miles for all. You might be surprised at how they add up.
Here is an example to illustrate. Let’s assume we have a married couple with a teen-aged son.
Combined Salaries: $120,000
Other income (Interest, Ordinary Dividends) : $5,000
Adjusted Gross Income: $125,000
Dental/Medical Threshold (10%): $12,500
Year of The Dentist
Dental expenses (all 3) $20,000
Chiropractic payments $2,500
Eyeglasses & contacts $750
Mileage (100 miles @ .23/mille $23
$24,873 – $12,500 = $13,373
Our example family can deduct dental and medical expenses above $12,500 so lumping expenses, as much as possible, into one calendar year gives them a larger tax deduction than if they spread the expenses out across multiple years. In the example above, the family can deduct $13,373 in dental and medical expenses. In the 25% tax bracket, this saves them approximately $3,000 in income taxes. The IRS has an Interactive Tax Assistant http://www.irs.gov/uac/Can-I-Deduct-My-Medical-and-Dental-Expenses%3F to help you see what can be deducted in your personal situation. It hasn’t been updated for 2015 yet but not much has changed so it is still useful.
Your Year of the Dentist may be two years away or ten but when it happens, plan to make the most of it. By coordinating a year of substantial dental work with other medical expenses you may be eligible to deduct some of the cost on your income tax return. Saving on taxes gives you the perfect reason to use that brand new smile!