People who itemize deductions on Schedule A of their tax return can benefit from year-end planning. For example, medical expenses in excess of 7.5% of your adjusted gross income (AGI) are deductible. Suppose Doug Douglas expects his AGI to be $80,000 this year. His unreimbursed medical expenses so far in 2008 are $7,000 so he’s over the 7.5%-of-AGI threshold, which would be $6,000.
Therefore, all the medical expenses that Doug incurs by December 31 will be tax-deductible. He might buy prescription sunglasses, for example, or schedule a visit with his dentist.
Alternatively, suppose that Doug’s unreimbursed medical bills for the year are only $4,000 so he’s far below the $6,000 threshold. Doug would be better off postponing elective medical care until 2009, when those expenses might be deductible if he winds up next year with higher costs for health care.
(Taxpayers who owe the AMT can go through a similar calculation but their threshold for tax-deductible medical outlays is 10% of AGI).