Deductions for Your Health and Your Wealth

This may be the most elusive tax break.

Lately, unlike stocks, medical costs seem to move in just one direction: up. And while belt-tightening employers aren't exactly at the peak of their generosity to their employees, many taxpayers are faced with higher medical bills that they need to pay directly.

It would seem that some relief could be found in the tax code, which allows a wide variety of medical expenses to be deducted -- potentially saving taxpayers a tidy sum on their medical bills. But the deduction for medical expenses is notoriously hard to achieve, because only expenses that exceed 7.5% of your adjusted gross income can be deducted. In other words, if your AGI is $100,000 and you have $10,000 in eligible medical expenses, only $2,500 of that (7.5% of $100,000 is $7,500) can be deducted. Also, only expenses that were not covered by health insurance can be deducted.

Even so, the Internal Revenue Service has made baby steps toward including more expenses under its eligibility requirements. In April the IRS announced that it will consider obesity a disease. That means that the cost of a weight-loss program prescribed by a doctor will qualify. (If you're just looking to shed a few pounds before summer, though, you won't qualify.)

Deductible expenses for medical care fall into four categories: (1) prevention, diagnosis, or alleviation of physical or mental defects or illness; (2) amounts paid to affect any structure or function of the body; (3) transportation primarily for and essential to medical care; and (4) accident and health insurance premiums. Clearly, the expenses don't need to be for catastrophic illnesses. It's also permissible -- indeed, expected -- to tally up a variety of smaller costs to try to exceed 7.5% of AGI.

Even so, there are many oft-overlooked deductible medical expenses that may not exceed 7.5% of your income but can certainly help you reach that goal. The following list is partial. You can find the complete array and more specifics in IRS Publication 502 at www.irs.gov.