Are you maximizing your medical tax deductions this year?
As of this publication, there’s still time to make some last-minute tax moves that can reduce your tax bill and help you build wealth while managing healthcare costs.
Here are some moves you can make right now to maximize your medical tax deductions:
1. Prepay Health and Long-Term Care Insurance Premiums
The IRS allows you to deduct medical insurance and health insurance premiums up to twelve months in advance.
This means that if you prepay now, you can claim the entire amount as a deduction for the current tax year.
This goes for individuals and businesses alike.
Many long-term care insurance carriers also offer discounts for paying an annual premium, which can lead to further savings. If you are eligible, make sure these payments fall within the same calendar year to maximize their deductibility.
Note: This doesn’t work for health sharing plans for individuals, since health sharing contributions aren’t deductible. However, if you’re a business paying health sharing contributions on behalf of employees, this strategy can still work, since your contributions are an employee compensation expense. So it’s still deductible on that basis.
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COLORADO HEALTH INSURANCE
Prepaying Insurance Premiums: Key Points
| Insurance Type | Deductibility Criteria | Additional Benefits |
|---|---|---|
| Health Insurance | Must be self-employed or itemized | reduces AGI, increasing subsidy eligibility |
| Long-Term Care (LTC) | Must meet IRS-qualified expenses limits | Possible premium discounts for annual payments |
2. Bunch Medical Expenses Into The Same Year
Medical expenses are generally deductible, but only if you itemize your deductions (you must submit a Schedule A with your individual income tax return) and only if they exceed 10% of your adjusted gross income (AGI).
By bunching medical expenses into the same year, you can increase the likelihood of crossing this threshold.
Eligible Expenses Include:
- Doctor visits
- Medically necessary procedures
- Prescription medications
- Travel expenses related to medical care
If you’ve already met your deductible or member responsibility amount for your health insurance plan, consider scheduling additional procedures or treatments before December 31.
Example:
| Scenario | Annual Income | Total Medical Costs | Deductibility Threshold (10% of AGI | Deductible Medical Expenses |
|---|---|---|---|---|
| Expenses spread across two years | $100,000 | $8,000 per year across 2 years | $10,000 | $0 |
| Expenses combined in one year | $100,000 | $16,000 all in one year | $10,000 | $6,000 |
As you can see, for an individual or family with an adjusted gross income of $100,000, bunching $16,000 in medical and dental expenses into a single year, rather than splitting them across two years results in a $6,000 tax deduction.
Had they split the deduction across two different years, they would not have been able to deduct any medical or dental expenses at all in either year.
Depending on their Colorado state and federal tax brackets, that’s a difference of thousands of dollars in after-tax income, right there.
3. Maximize HSA Contributions
A Health Savings Account (HSA) is one of the most effective ways to reduce your taxable income while saving for future medical expenses.
Contributions to an HSA are tax-deductible, and you can contribute up until April 15th of the following year for the current tax year.
2024 Contribution Limits:
- $4,150 for individuals
- $8,300 for families
- Additional $1,000 for those age 55 and older
Even if you don’t itemize deductions, an HSA provides an above-the-line deduction, which reduces your AGI and may improve your eligibility for health insurance subsidies.
Note: Contribution limits are going up in 2025, to $4,300 for individuals, and $8,550 for families.
It’s a good idea to adjust your automated monthly contributions accordingly.
4. Deduct Medically Necessary Travel and Modifications
Beyond traditional healthcare costs, the IRS allows deductions for medically necessary expenses.
Eligible Expenses:
- Travel expenses for medical care
- Home modifications (e.g., wheelchair ramps, grab bars)
- Car modifications for medical use
To claim these deductions, ensure they are documented and meet IRS requirements.
Again, try to group these expenses into the same year to maximize their impact on your Schedule A deductions, rather than spread them out across multiple years.
5. Reduce Your AGI for Subsidy and Deduction Benefits
Reducing your AGI has a twofold benefit:
1. Increase Your Healthcare Subsidy: Lowering your AGI can increase your eligibility for premium tax credits and healthcare subsidies under the Affordable Care Act.
2. Raise Your Deductible Medical Expenses: Since medical deductions are limited to expenses exceeding 10% of AGI, a lower AGI allows more of your costs to qualify.
Here are some great ways to reduce your AGI on paper – without reducing your overall net worth:
- Maxing out 401(k) and IRA contributions
- Contributing to an HSA
- Accelerating business expenses or capital investments into the current year.
If you are self-employed, claim the Small Business Health Insurance deduction to reduce your taxable income further.
6. Timing Business Deductions and Investments
For small business owners and independent contractors, leveraging business-related deductions can enhance tax savings.
Consider these strategies:
- Accelerated Depreciation. Claim accelerated depreciation on real estate or other capital investments.
- Start or Expand a Business. Deduct eligible startup costs or additional investments.
- Small Business Health Insurance Deduction. If you provide health insurance to employees, this deduction can significantly reduce your AGI.
- HSA Secure: A Perfect Fit for Business Owners. HSA Secure is an ideal solution for Colorado business owners and contractors. It combines an HDHP with HSA eligibility, offering tax advantages and healthcare flexibility.
7. Contribute to a Colorado Medical Savings Account
These are special tax-advantaged savings accounts specific to Colorado.
Here’s what you need to know:
- There’s a $3,000 annual contribution limit.
- Employers can set them up for their employees.
- Individuals can set up their own Medical Savings Accounts if their employer does not offer them.
- Contributions may be made by the employer, the employee, or a combination of the two. The $3,000 limit applies to their combined contributions.
- Any amounts contributed to a medical savings account and any interest earned are Colorado tax free to the employee as long as such funds remain in the account.
- Contributions are not federally deductible. They are only free of Colorado state income tax.
- Self-employed individuals are not eligible.
Learn More: State of Colorado-Medical Savings Accounts
8. Coordinate State and Federal Tax Benefits
Colorado residents can benefit from tax timing strategies at both the federal and state levels. For example:
- HSA Contributions. Deductible on both state and federal returns.
- Medical Expenses. Align with Colorado tax rules for additional savings.
Review your state-specific tax code or consult with a Personal Benefits Manager to ensure compliance and maximize benefits.
Quick Reference Tables
HSA Contribution Limits (2024)
| Coverage Type | Contribution Limit | Catch-Up Contribution (55+) |
|---|---|---|
| Individual | $4,150 | $1,000 |
| Family | $8,300 | $1,000 |
HSA Contribution Limits (2025)
| Coverage Type | Contribution Limit | Catch-Up Contribution (55+) |
|---|---|---|
| Individual | $4,300 | $1,000 |
| Family | $8,550 | $1,000 |
HSA Contribution Deadline: April 15th of the following calendar year for current-year contributions.
Tax Deductions for Medical Expenses
| Expense Type | Deduction Criteria |
|---|---|
| Health Insurance Premiums | Up to 12 months prepayment |
| Long-Term Care Insurance | Subject to IRS limits by age |
| Travel for Medical Purposes | $0.23 per mile (2024 IRS rate) |
| Home/Car Modifications | Must be medically necessary |
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What to Do Now About Medical Tax Deductions
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Christine Corsini is a health insurance and medical cost sharing expert, and a Personal Benefits Manager at ColoHealth. Her goal is to help people embrace life’s amazing possibilities by staying healthy, saving money, and making the best decisions when it comes to healthcare.
